Bengal in a class apart: no fiscal responsibility Act yet

Written by Sumit Moitra | Kolkata, Aug 30 | Updated: Aug 31 2007, 05:37am hrs
West Bengal has just earned the dubious distinction of being listed by the Reserve Bank of India as the only state, together with tiny Sikkim, that has failed to enact a fiscal responsibility law.

"The States of Sikkim and West Bengal are yet to enact the Fiscal Responsibility Legislations," the RBI document has said.

Kerala was the second state in the country after Karnataka to draw up the legislation in 2003.

According to the RBI document, 26 states have so far enacted FRLs. Following Karnataka and Kerala, Tamil Nadu (2003) and Punjab (2004) signed up, which prodded other states to get their fiscal front in order.

To facilitate adoption of a rule-based fiscal programme at the state level, RBI, based on a decision taken in the 12th Conference of state finance secretaries in August 2003, had formed a group with representatives from several state governments and the Centre to frame a Model Fiscal Responsibility Bill. The group submitted its report in January 2005.

"The enactment of FRLs has provided impetus to the process of attaining fiscal sustainability as reduction in key deficit indicators, like revenue deficit and gross fiscal deficit, is critical for reducing the mounting level of debts of the states," RBI has noted.

Although there are variations across states in the choice of target and the time frame for achieving the target, most of the FRLs have stipulated elimination of revenue deficit by March 31, 2009, and reduction in gross fiscal deficit as per cent of gross state domestic product (GSDP) to 3% by March 31, 2010, in line with the targets prescribed by the TFC.