Speaking at the 48th National Development Council (NDC) meeting here on Friday, Vajpayee said that "we are standing at the crossroads" and the need of the hour was "greater fiscal discipline and responsibility, both at the Centre and in states, so that public-sector investment is not jeopardisied."

The NDC, at its day-long meeting, approved the Ninth Plan, envisaging a growth rate of 6.5 per cent with a public outlay of Rs 859,200 crore. In a bid to bail out states from financial crisis, the council decided to enhance the ways and means advance limits ranging between 40 per cent and 60 per cent from March 1 besides approving the Ninth Plan, two years after its implementation started.

Theraising of the limits by the Reserve Bank of India was originally to take effect from the next financial year but it has been advanced by a month to help states find resources to fulfil plan targets.

On the outcome of the meeting, Planning Commission deputy chairman KC Pant said Vajpayee would soon set up a high-level committee of chief ministers and Union ministers to evolve a medium-term strategy to go into the problem of states' resources. The NDC will meet again in a fortnight to discuss the committee's recommendations.

Apart from Pant, the meeting was attended by finance minister Yashwant Sinha, external affairs minister Jaswant Singh, state chief ministers and Governors. The plan also provides for Rs 22,300 crore for the Prime Minister's special action plan.

Vajpayee stressed that there was both a need and scope to raise resources through levying reasonable electricity tariffs and irrigation charges. He added that untargeted and unintended subsidies often led to distortions in resource allocationbesides failing to benefit the really poor.

Pointing out that "we should not be the prisoners of the past", he said "subsidised services should be restricted to only those who cannot afford to pay." He added that no Government could afford to provide costly services free universally, and made a case for levying "reasonable user charges wherever possible, particularly for non-merit goods and services".

The Prime Minister also said that the target of 7 per cent growth in the next three years (1999-2002) "is not easy to achieve, given the many difficulties and uncertainties of the world economy today". According to him, it was only possible "through a determined effort of the Centre and the states".

Stating that the private sector, both in agriculture and industry, will provide a thrust to economic growth, he said the Government would continue to play a crucial role in strengthening social and physical infrastructure. He, however, warned, "This cannot happen unless the fiscal health of the Governments atthe Centre and in states improves considerably."

Vajpayee said: "We will fail in our duty if we do not improve the central and state finances. The Centre has started taking firm measures to fulfil the responsibility. I urge the state governments, too, to put their finances in order."

He added that states' own contribution to plan financing was non-existent. States were increasingly borrowing even to finance their current consumption.

The Prime Minister underlined the need for all-round austerity to contain wasteful expenditure. Revenue should be increased through greater attention to efficiency and productivity, he added.

Referring to the Pay Commission report and its snowballing impact on state finances, Vajpayee said, "We will be more considerate of states' interest in future."

At the Centre, he said, all ministries were asked to enforce expenditure management rigorously. He wanted the states to follow suit.

The Prime Minister also urged the states to stop competitive populism of giving taxexemptions to industry. "Such policies are harmful as states lose tax revenue without much influence on investment decisions," Vajpayee said. "Better infrastructure, faster decision-making, and an investor-friendly environment are more important in the decision matrix of the investor community," he added.

Vajpayee also spoke about the practice of states to extend guarantees to state-level public enterprises. The practice, he said, was pushing the states towards fiscal crisis. "These guarantees may devolve on state governments, as the financial health of many such enterprises is not sound. This practice will hurt the states' credibility and adversely influence their credit ratings," he added.