VAT accord

After two successive postponements of state-level VAT implementation, the Centre has arguably managed to convince the state governments to stick to a new April 1, 2003 deadline.

While the Centre has recently introduced a Constitution Amendment bill to allow states to tax services, the states too have made good progress by putting in place legislative framework for managing the transition.

The crucial issue of compensating states for any notional revenue losses has been addressed with the Centre agreeing in-principle to make good the losses.

About 15 states have finalised their respective VAT legislations which would replace the sales/commercial tax legislations once the transition to the new regime takes place.

Reluctance on the part of several states, however, to address two ticklish issues - treatment of existing sales tax incentives in the post-VAT scenario and their insistence to levy entry tax - threatens to derail the schedule beyond April 1 next year.

In contrast to the position taken by the Centre on providing monetary support to the states, the Kelkar task force on indirect taxes, has recommended that the government should not extend budgetary support to the states.

Any compensation to states for revenue losses arising from their transition to value added tax should be done by way of additional resource mobilisation through levy of service tax, it said.

Debate of the year: Divergent divestment policy

The Congress fretted and fumed over the Centre's privatisation policy. However, when it came to shoring up revenues by disinvesting the states' holding where it ruled, Congress obviously had a different yardstick to apply.

Punjab CM Amarinder Singh continues to scout for partners for strategic sale of Punjab Tractors even as his counterparts slug it out with Divestment Minister Arun Shourie in Parliament opposing the Centre's policy tooth and nail.

Punjab has, in fact, put on the block nine companies, including the profit-making Punjab Tractors and Punjab Communications.

Achievement of the year: State govt deficits on the mend

"The state of the deficit is bad, but what about the deficit of the states?" Congress economic affairs secretary Jairam Ramesh often quips, drawing attention to the fiscal decay in most states.

But, today, while state government deficits are on the mend, the Centres' finances are worsening. The fiscal deficit of the Centre rose from 5.4 per cent of GDP in 1999-00 to 5.7 per cent in 2001-02, and is expected to cross 6 per cent this year.

The fiscal deficit of all states fell from 5.05 per cent of Gross State Domestic Product in 1999-00 to 4.82 in 2001-02, and is expected to be around 4.13 per cent this year. Figures for the revenue deficit show a similar trend.

Debacle of the year: Downgrading of Maharashtra

Maharashtra became the first state to default on its borrowings through state-owned undertakings.

This prompted rating agency Crisil to downgrade Maharashtra government in October to 'D (so)' from 'BB plus (so)' following delay in payment of interest and principal obligations on bonds issued by its special purpose vehicles for irrigation.

Maharashtra thus became the first state to be downgraded to the junk status.

2002: The Year That Was

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