FINANCE MINISTER UNDERLINES
NEED TO IMPROVE STATES FISCAL SITUATION
The Union Minister
for Finance & Company Affairs, Shri Jaswant Singh, has stressed
upon the need to contain debt and mobilise tax resources by the
State Governments. In his opening remarks at a meeting of the
Prime Minister Shri Atal Bihari Vajpayee with State Chief Ministers
held today on the "Fiscal Situation of the States",
the Minister expressed concern over the build-up of State Government
debt over the last five years and said that States must draw up
medium term fiscal reform programmes aiming at fiscal consolidation
and debt stabilisation. The meeting, which is being chaired by
the Prime Minister, was also attended by the Deputy Chairman Planning
Commission, Shri K.C. Pant. It is for the first time that the
Prime Minister and the States Chief Ministers are meeting to discuss
the serious fiscal situation of the States.
On the need to mobilise
tax resources, Shri Jaswant Singh said that State Level Value
Added Tax (VAT) is to be implemented from 1st April
2003. Necessary amendment of Article 269 of the Constitution is
in the process which will place services in the concurrent list
and enable the States to tax certain services. He said that some
outstanding issues, such as the quantum of compensation to States,
if States face initial loss in tax revenues, will soon be sorted
out.
The Minister said
that State borrowings will have to be brought in line with the
prudential debt limits indicated in the State Fiscal Reforms Programmes.
He said that the issuance of Government guarantees also has to
be contained. Rise in defaults on debts servicing obligations
by State-owned enterprises, backed by state Government guarantees
are a matter of concern.
On the Debt Swap
Programme, proposed by the Central Government, the Minister said
that complete consensus had not yet emerged regarding the scheme.
The States had expressed some difficulties in the scheme proposed
by the Centre during the current year due to cash flow problems.
He said that the High powered Committee would discuss this matter
further with the States to arrive at an agreement. Currently,
the States have an outstanding debt of approximately Rs. 5,50,000
crores of which about 50 per cent are loans to the Government
of India. The proposed Debt Swap Programme will allow all states
to retire high cost Government of India loans of the past with
current loans at softer terms. The estimated interest savings
over the maturity of the loans is about Rs. 37000 crores.
Regarding the transfer
of funds, under the Centrally sponsored schemes, the Minister
said that it had been agreed that these funds would flow into
the Consolidated Fund of the States with a pre-condition that
the States would pass on the funds to the end-users within a stipulated
timeframe of about 2-3 weeks. The States had made a demand that
funds under the CSS should not be directly routed through registered
societies.
The Minister said
that a review of the overdraft regulations scheme was being undertaken
and the RBI had appointed a committee under Shri C. Ramachandran,
former Secretary (Expenditure), to give recommendations on this
issue. The States have made a case for a more liberal ways and
means scheme under which the limits of their overdrafts, as well
as the duration of their overdrafts are regulated.
On the issue of the
payment of DA, Bonus and commutation of pension, the Finance Minister
said that this required a broader consensus which was not there
at present. Therefore, any decision on this would have to be deferred.
The Minister said that the recent judgment of the Supreme Court
on the pay scales of subordinate judiciary implied a total expenditure
of Rs. 14000 crores, most of which would have to be borne by the
State Governments. He said that this issue would be taken up in
an appropriate manner after discussions with the State Governments.
