CENTRE AND STATES AGREE
FOR TOUGH MEASURES TO CHECK DETERIORATING FISCAL SITUATION
The Prime Minister,
Shri Atal Behari Vajpayee today chaired a meeting of State Chief
Ministers to evolve solutions to the critical fiscal situation
faced by the states. The Union Finance Minister, Shri Jaswant
Singh, the Deputy Chairman Planning Commission, Shri K.C. Pant,
Chief Ministers and Finance Ministers of the state governments
attended the meeting. The meeting which was the first of its kind,
sought to address the problem of deteriorating public finances
and arrive at a consensus on solutions.
The Prime Minister
underlined the serious dimensions of the problem and stressed
the need to take immediate corrective action. He reiterated that
the country could not postpone the switch over to Value Added
Taxes at the state level if the trend of decreasing tax collections
was to be reversed.
The meeting discussed
the issue of unsustainable level of State debt. The need to take
corrective action immediately to contain both debt as well as
guarantees was stressed by all participants. The need for the
states to formulate state specific medium term fiscal reforms
programmes aiming at fiscal sustainability and debt stability
was underlined.
The debt swap scheme,
which has been formulated to enable the states to swap high cost
debt contracted in the past with lower interest bearing loans,
was discussed in detail. While the scheme was appreciated on merits,
certain reservations about implementing the scheme from the current
financial year, on account of liquidity problems remains to be
sorted out.
The meeting also
focussed on the need to route funds released by central ministries
to agencies in the states through the state governments. It was
felt that this would create greater accountability. It was also
discussed that a broader consensus was necessary before steps
could be taken both by the Centre and the States relating to salaries
and emoluments.
Many Chief Ministers
voiced concern over the cash flow problems faced by the states
resulting in overdrafts with the Reserve Bank of India. It was
noted that the RBI has already constituted a committee to give
its recommendations on this issue.
The meeting concluded
with expectations that steps deemed necessary by the states and
Centre to reverse the deteriorating trend of state finances would
be taken. The state governments expressed their appreciation over
the consensual approach adopted by the Centre and the states in
attempting to arrive at these solutions.
