rediff.com: States' fiscal woes to be resolved soon: FM

State finance ministers will hold meetings with the Centre to resolve the issue of high cost debt and other problems (of the states) by next month, Finance Minister Jaswant Singh told the Rajya Sabha on Thursday.

"Once we have controlled the bleeding of the finances, we can address the substantive issue," he said adding the prime minister would then call a meeting of the state chief ministers.

"We will try to find an answer to various financial problems of the states by end of September," Singh said replying to a debate on the deterioration of the finances of the states and their unsustainable debt burden.

Singh assured Left members that their grievances over limits placed by Reserve Bank of India on access to finance by the states will be looked into during the state finance ministers' meeting, the first of which has already been held.

The finance minister said the chairman of the committee on value added tax, Asim Dasgupta, had told him that 98 per cent of the work of the panel was over.

Singh said once a firm decision is arrived on the implementation of VAT, the same can also be taken up at the state finance ministers' meeting.

Stating some states are spending 80 per cent of the Plan allocation on meeting revenue expenditure, Singh said without going into the background, the states and the Centre should arrive at a consensus on coming out of the financial mess.

"This cannot be achieved overnight," he said, adding the Centre would take an unbiased and objective view of deteriorating state finances.

The finance minister said the Centre would not remain a mute spectator to the problems of the states and would always come forward to help them out.

Singh expressed grave concern over the low level of tax-GDP ratio and declining capital investment that is "mortgaging" the future of states.

Senior Congress leader Pranab Mukherjee said the Centre should take "hard steps" to deal with the situation as implementation of the 5th Pay Commission's recommendations had "disastrous" effect on the country's finances.

Expressing concern over the fact that since 1996 the total tax revenue of the government had failed to reach Budget estimates, Mukherjee said like state governments, the Centre should also impose "self-control" on its unlimited borrowings.

Saying the country must reach the tax-GDP ratio of 12 to 14 per cent in the next five years, the former finance minister said for achieving this the government would have to widen the tax base by bringing the services sector under its purview.

Calling for continued incentives on domestic savings, Mukherjee said the government should come forward with a long-term fiscal policy after consultations with state governments.

Singh said he favoured state governments swapping high interest debt for lower interest loans.

Singh said, interest rates have been falling with the benchmark bank rate at a three-decade low of 6.5 per cent.

A drought afflicting large swathes of the country have fuelled market speculation that a further rate cut could be in the offing to boost demand.

"I accept when interest rates are lower why should states be saddled with higher interest?" Singh told Parliament.

The combined fiscal deficit of the central and state governments was nearly 10 per cent of GDP in 2000-01 (April-March), resulting in the combined general government public debt hitting 85 per cent of GDP last year.

Easing the interest rate burden would help state governments reduce spending and lower their deficits.

Most international rating agencies cite India's high deficit as an obstacle to fast economic growth and an improvement in the country's sovereign rating which is at junk bond levels.

The government plans to narrow the central fiscal deficit to 5.3 per cent of GDP in 2002-03 from 5.7 per cent in the previous year.




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