Fine on the fiscal front

Written by The Financial Express | Updated: Oct 30 2007, 05:01am hrs
The Planning Commissions finding that most states are financially sound and well poised to begin the 11th Plan on a fiscally consolidated platform is a welcome change after decades of fiscal floundering. However, credit for this, which took place over a period of six years from 2002-03 onwards, must be shared all around. The Centre, which drove fiscal sense home by legislating the FRBM Act in 2003, gets the first big pat on its back. The subsequent economic boom has done marvels to government revenues, but the states did well not to throw away the gains. Karnataka, Kerala, Punjab and Tamil Nadu, for example, were quick to enact their own fiscal responsibility legislations the very same year, with as many as 19 of the 29 states following soon after. Moreover, some 18 states also followed the Centres efforts to reduce pension liabilities by introducing the new pension scheme after Tamil Nadu set the ball rolling in 2003. Other progressive measures taken include ceilings on state government guarantees, the setting up of guarantee redemption funds to meet the burden of devolved guarantees, and a consolidated sinking fund for redemption of loans. While the initiative on the first was taken by Sikkim in 2000, and later copied by 16 other states, the second initiative was kicked off by Goa in 2001 and then replicated in 10 other states, while the leadership for the third initiative apparently came from West Bengal in April 1999 which lead the way for 16 other states. The introduction of state Vat to replace sales tax, first by Haryana in 2003 and now by almost all 28 states, and the restructuring of state debt by the central government to reduce the interest burden were also big factors in getting the state fiscal scenario in such fine shape.

The gains thus made were consolidated by holding down revenue expenditures and boosting capital spending. As a result, the states are expected to post an aggregate revenue surplus this fiscal year for the first time in over two decades. This is quite something. And though wayward states like West Bengal, Kerala and Jharkhand continue to be profligate, the effects are more than offset by the fiscal responsibility shown by the rest. It is time now to focus on improving the quality of spending and ensuring better delivery of crucial services like health, education, transport and measures for agricultural extension.