‘Cash-strapped’ state governments, which have been clamouring for more funds from the Centre to finance various schemes, parked a staggering Rs 76,794 crore in treasury bills (T-bills) of various maturities issued by the central government till end-June this year.
This is despite both the finance ministry and the Planning Commission prodding state governments to invest more on infrastructure and social sectors.
However, critics say that states are forced to park their precious resources in safe instruments like T-bills to meet the obligations under the Fiscal Responsibility and Budget Management Act 2003, which laid down a stringent roadmap to control deficits and improve the quality of state finances.
According to the numbers gathered by FE from the Reserve Bank of India, states’ combined investments in T-bills was nil in June 2000, but started picking up momentum since 2004 and has since started growing at an exponential rate. From Rs 7,643 crore in June 2004, the combined investments in T-bill steadily grew to Rs 11,639 crore in 2005, to Rs 57,909 crore in June 2006 and a whopping Rs 76,794 crore in June 2007, more than a 10-fold increase from the level of 2004.
Experts feel that a major reason for this paradox — less revenue to invest in key sectors while investments in instruments such as T-bill go through the roof — is the obsession by the states to control deficits. Investment in social sector happen to be the first casualty in expenditure-control methods, they point out.
“The basic issue is the obsession with deficits. What is happening is that states are cutting down expenditure to comply with their FRBM obligations, and parking the extra funds in instruments such as T-bills, which will earn them some extra revenue. However, the additional resource mobilisation by the states falls far too short of the requirements for investment in key sectors. In such a scenario, investment in social sector will inevitably become a casualty, adding to the existing woes of the people. Cases like Kerala, which witnessed a major outbreak of several epidemics recently while state’s healthcare system literally collapsed, are classic examples”, says M Suresh Babu, assistant professor, Indian Institute of Technology (IIT), Madras.