"Since the package was initiated there has been very limited exercise of the option by state governments," said ministry sources.

There were no takers for the scheme during the fiscal 1997-98 and prior to that Tamil Nadu was the only state which had gone in for the additional financing under the scheme. Tamil Nadu had in fact availed Rs 10.39 crore with a linked disinvestment of equity in a number of public sector units.

In order to boost better fiscal discipline in the states and lessen their debt burden, the finance ministry offers two routes - general debt relief and specific debt relief. The disinvestment linked debt relief package is the third route floated by the finance ministry upon the recommendations of the Tenth Finance Commission.

The disinvestmentlinked debt-relief package offers special financial assistance for those states which have divested up to 20 per cent of their aggregate equity from public sector enterprises. In addition, as per the criteria, these states are also required to utilise the proceeds from this disinvestment for retirement.

For such states, the Centre would also additionally write-off debt equivalent to the debt retired from the state as limiting only to 20 per cent of the equity investment of the state. "This package has not met with its target and has not been popular amongst the state governments," sources said.

As per finance ministry sources, the high fiscal stress states are Uttar Pradesh, Bihar and Orissa. Seeing the high level of debt burden on these states and lack of appropriate funding mechanism to bail them out from the imbroglio, the Tenth Finance Commission had suggested to the finance ministry to `automatically' write-off as much as five per cent of the repayment dues of the states.

This includes the freshcentral loans awarded to them as well as those outstanding. The states can also avail a general debt relief upon showing a better fiscal management.

"Based on the ratio of revenue receipts to total revenue expenditure in a year with an average of corresponding ratio in the three immediately preceding years gives us a ample picture of the fiscal management of the state finances," said finance ministry sources. Each state is benchmarked against this ratio and its performance over the past few years determines whether it is a fiscally stressed economy and requires an urgent financial assistance. The debt relief could be in terms of a certain portion of the repayment due in each year.