State governments can be relied upon to try and solve their cash crunch by painless short-term solutions such as extending state government guarantees to raise funds. A step forward will therefore be a decision to put a cap on such guarantees. But perhaps the most important impetus to reform can arise once a decision is taken to allow states to borrow solely on the strength of their balance sheets. A small beginning towards this end has already been made, but once it is left to the market to price state issues, the effects of profligacy will be brought home forcibly to state governments. It is encouraging that state chief ministers have been involved in formulating a medium-term strategy for fiscal reform. Given the power which regional parties hold in a coalition, while initiatives by the finance ministry are welcome, they need to have political backing in order to be implemented.