Time frame mooted to eliminate state deficits

Monday, 20 December 2004, 20:30 IST
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NEW DELHI: A leading industry lobby has urged fixing a time frame and bringing in a legislation to ensure that states act to wipe out their unsustainable revenue deficits. "There is a need to fix a time frame for states to eliminate revenue deficits and bring in legislation on the lines of the Fiscal Responsibility and Budget Management Act of the Centre," the Federation of Indian Chambers of Commerce and Industry (FICCI) said Sunday. A FICCI study, entitled "State Finances in India: A Move Towards Sustainability", has expressed concern over the steady rise in the debt versus Gross State Domestic Product ratio of states during the past decade. The revenue deficit of states have risen from 18.7 percent in 1993-94 to 29.1 percent in 2003-04 as they continue to borrow to finance current spending, with poor states like Bihar, Uttar Pradesh, Madhya Pradesh and Rajasthan running up unsustainably high debt levels. The study has cautioned that unless the quality and quantity of productive expenditure is drastically improved through restructuring and management of expenditure, revenue reforms and mobilisation, India's growth and human development will take a hard knock. The study notes that states in India are responsible for a higher proportion of general government spending than any other developing country, except China. For instance, the share of states in public health spending is reckoned at 90 percent, public education 86 percent, irrigation maintenance 97 percent, road maintenance 39 percent and total government capital expenditure 57 percent. Outlining the road map to put state finances on an even keel, the study calls for time-bound elimination of revenue deficits by bringing in legislation on the lines of the Centre's Fiscal Responsibility and Budget Management Act and introducing measures for restraining any more increase in guarantees that states can give to projects. "The centre should take steps to ensure that all states set deadlines for reduction of revenue deficits. Five states, Karnataka, Kerala, Punjab, Tamil Nadu and Uttar Pradesh, have already done this," the study points out. Among other suggestions, the study urged enhancing or rationalising taxes, switching over to the value added tax system, and making a plan for generating greater revenue through mineral royalties and tax administration reforms.
Source: IANS