Centre, States Play Ping-pong Over Restoring Fiscal Health

New Delhi, October 18: | Updated: Oct 19 2002, 05:30am hrs
With the Centre and states deciding to throw the ball into each others court, prime minister Atal Bihari Vajpayees meeting with chief ministers here on Friday failed to evolve a consensus on stringent steps on the fiscal front. Thus, issues like a freeze on dearness allowance (DA) and suspension of bonus and commutation of pension to cut non-Plan expenditure continued to remain unresolved.

The debt-swap scheme for states too could not be finalised for lack of agreement among the states.

Advantage VPN
Jayalalithaa Favours Freezing Of DA
Krishna, Predictably, Opposes It
Antony Against Tightening Of Overdraft
Digvijay Opposes Centre Retaining 30% Of Small Savings
Patnaik Demands Withdrawal Of Bonus, LTA Facility
Gehlot For Abolition Of Central S-T
UP Says Pursuing Fiscal Reforms
Chautala Gives A Cautious Go-ahead
Full story
However, states like Tamil Nadu, Orissa and Haryana came out as more positive in their approach to the matter of fiscal discipline. Others like Karnataka stoutly opposed any move on freezing DA but favoured redeployment of personnel and strict recruitment controls.

Issues of debt-swap, DA, bonus and commutation of pension require broader consensus which is not there at present and a decision on these has been deferred, Union minister for finance and company affairs Jaswant Singh said in the meeting presided over by Mr Vajpayee.

The prime minister in his opening remarks said: I must stress and I do so at the cost of repetition that unless we broaden the area of political consensus between the Centre and states, on critical developmental and governance reforms, the problems we currently face would get compounded.

I appeal to you (chief ministers) to help make todays conference a major milestone in our ongoing efforts at achieving better fiscal discipline and thereby attaining higher growth rates, he added.

Noting that the fiscal health of states has been a matter of much concern to all policy makers for some time now, Mr Vajpayee said the fiscal deficit of the Centre and states together is unacceptably high.

Expressing happiness over the steady convergence of views between the Centre and states during the last few years, the prime minister said, We had useful conferences on power sector reforms and issues before Indian agriculture in the context of challenges and opportunities presented by WTO.

It is in the same spirit that we are meeting today, he said, hoping the conference would come up with an agreed approach to remedy them in the true spirit of cooperative federalism.

Among other issues discussed at the meeting, on the recent Supreme court judgement on hiking pay scales of subordinate judiciary, Mr Singh said the matter would be taken up in an appropriate manner after discussions with the state governments as it involved an expenditure of Rs 14,000 crore that had to be borne by them.

Regarding the debt-swap, the finance minister said states have expressed some difficulties in the scheme during the current year due to cash flow problems, adding that a high-powered committee would discuss this matter further with the states to arrive at an agreement.

Mr Singh stressed that the states borrowings would have to be brought in line with the prudential debt limits indicated in the state fiscal reform programmes. The issuance of government guarantees also has to be contained, he added.

Mr Singh also said that rise in debt servicing obligations by state-owned enterprises, backed by state government guarantees, are a matter of concern.

Announcing that the overdraft regulation scheme for states is being reviewed, he said the Reserve Bank of India (RBI) has appointed a committee under C Ramachandran, former expenditure secretary, to go into the issue.

On transfer of funds under the centrally sponsored schemes, the finance minister said it has been agreed that these funds would flow into the Consolidated Fund of states with a precondition that they would pass on the funds to the end-users within a stipulated time-frame of about 2-3 weeks.

Mr Singh also pointed out that necessary amendment of Article 269 of the Constitution is in the process which will place services in the concurrent list and enable states to tax certain services. He added that some outstanding issues, such as the quantum of compensation to states, if they face initial loss in tax revenue due to implementation of VAT, will soon be sorted out.