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No consensus on DA freeze, debt-swap at CMs meet

The chief ministers' conference failed to arrive at a consensus on debt-swap and freezing of dearness allowance of government employees as measures to improve the fiscal situation of the states and the Centre.

Issues of debt swap, DA, bonus and commutation of pension required broader consensus, which was not there at present and a decision on these has been deferred, Finance Minister Jaswant Singh told the conference presided over by Prime Minister Atal Bihari Vajpayee.

Regarding the recent Supreme Court judgement on hiking pay scales of subordinate judiciary, Jaswant Singh said the issue would be taken up in an appropriate manner after discussions with the state governments as it involved an expenditure of Rs 14,000 crore (Rs 140 billion), which had to be borne by them.

Elaborating on the debt swap programme proposed by the Centre, Singh said complete consensus had not yet emerged among the states.

The states had expressed some difficulties in the scheme during the current year due to cash flow problems, he said adding a high powered committee would discuss this matter further with the states to arrive at an agreement.

The total outstanding of states at present was around Rs 5,50,000 crore (Rs 5,500 billion) of which about 50 per cent are loans from the centre.

The proposed debt swap programme will allow all states to retire high cost central government loans of the past with current loans at softer terms. The estimated interest savings over maturity of the loans is about Rs 37,000 crore (Rs 370 billion).

Singh, however, emphasised that the states' borrowings would have to be brought in line with the prudential debt limits indicated in the state fiscal reform programmes. The issuance of government guarantees also has to be contained.

Rise in debt servicing obligations by state-owned enterprises, backed by state government guarantees are a matter of concern, he warned.

Announcing that the overdraft regulation scheme for states was being reviewed, Singh said the Reserve Bank has appointed a committee under C Ramachandran, former expenditure secretary, to go into the issue.

Regarding transfer of funds under the centrally sponsored schemes, Jaswant Singh said it had been agreed that these funds would flow into the consolidated fund of states with a pre-condition that the states would pass on the funds to end users within a stipulated timeframe of about 2-3 weeks.

The states had made a demand that funds under the centrally sponsored scheme should not be directly routed through registered societies.

On mobilising tax resources, Singh said the state level value added tax is to be implemented from April one, 2003 and necessary amendment to article 269 of the Constitution was in the process.

The constitutional amendment will place services in the concurrent list and enable the states to tax certain services.

He assured that some outstanding issues regarding VAT like the quantum of compensation to states, if states face initial loss in tax revenues, would soon be sorted out.

While the Centre has proposed 75 per cent compensation of the revenue loss, the states have demanded 100 per cent compensation.

Underlining the need to contain debt and mobilise tax resources by states, Singh suggested that state governments draw up medium term fiscal reform programmes aimed at fiscal consolidation and debt stabilisation.

The states which agreed with the Centre's proposal to freeze DA included Tamil Nadu, Orissa, Haryana and Rajasthan while Madhya Pradesh, North East states except Assam, and Karnataka, asked the Centre to chip in if DA was increased. The cash strapped Kerala chose to remain silent.

"The distress has to be shared. Employees cannot expect increase in emoluments as a routine when states are floundering to meet their obligations to the poor," Tamil Nadu Chief Minister J Jayalalithaa told the conference.

"There is agreement on three issues -- transfer of centrally sponsored schemes, implementation of VAT from April 1 2003 and Supreme Court order on payscales of subordinate judiciary but no consensus on core issues like DA, bonus, pension and debt swap," West Bengal Finance Minister Asim Dasgupta said summing up the outcome of the conference.

Apart from Vajpayee and Singh, the meeting was attended by Planning Commission Deputy Chairman K C Pant and chief ministers from several states including Jayalalithaa of Tamil Nadu, Digvijay Singh of Madhya Pradesh and Ashok Gehlot of Rajasthan.

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