Odisha’s experience shows that with political support, transparency, and disciplined control over spending, even stressed public finances can be reversed, offering lessons for other states facing similar challenges.
Many state finance secretaries inherit public finances already under strain, but Odisha’s experience shows that even severe stress can be reversed with political backing, transparency and tight control over spending. The basic pattern is familiar: rising debt, recurring revenue deficits and an inability to fund day-to-day obligations, let alone schools, hospitals, farm support or rural infrastructure. In such conditions, borrowing often deepens the problem rather than solving it.
When U. Sarat Chandran became finance secretary in Odisha in November 2003, the state was close to running out of room to manoeuvre. According to his account, the government did not even have enough money for the following month’s wages and was relying on Reserve Bank of India overdrafts almost every day. Yet he says the state moved from crisis to a revenue surplus within a year, helped by a reform programme that combined clearer communication with the political leadership and a willingness to confront the scale of the problem.
A key part of the turnaround was openness. Chandran says Odisha produced one of the country’s first white papers setting out the weakness of its finances and the recovery plan, and the proposal was discussed in the state assembly. The state also secured support from the World Bank through a structural adjustment facility and obtained untied grant funding from the UK government, allowing it to ease short-term pressure without abandoning spending on health, education and rural development.
That reform effort was backed by legal and administrative changes. Odisha moved early to enact fiscal responsibility legislation, the state’s Fiscal Responsibility and Budget Management Act, which aimed to reduce revenue deficits, promote prudent borrowing and force fiscal policy into a medium-term framework. Official documents from the state finance department show the law was later amended in 2022, indicating that the framework has remained central to Odisha’s fiscal governance.
Operational changes mattered as much as legislation. Chandran says treasury systems were computerised so the finance department could see receipts and spending in real time, limiting unnecessary overdrafts. Tax collection was broadened through the introduction of value added tax, while investment was encouraged in sectors linked to minerals and ports. He also describes a strict tone on expenditure, including his decision to use a small Maruti car for official travel as a signal that public money should be spent carefully.
The wider lesson, as Chandran presents it, is that debt discipline works best when it is tied to accountability. He argues that borrowing should be limited to capital investment over the economic cycle, that major projects should be scrutinised before they enter the budget and that department secretaries should have authority to spend once appropriations are approved, while remaining responsible for delays and overruns. Odisha’s finance rules and the medium-term planning requirements in its fiscal law support that approach. For other states, the message is less about one-off rescue packages than about building systems that make fiscal repair politically and administratively possible.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
