PM-CMs To Zero In On Fiscal Health

New Delhi, October 17: | Updated: Oct 18 2002, 05:30am hrs
Prime Minister Atal Bihari Vajpayee will confer with chief ministers on Friday on a strategy to bring states respective debts to sustainable levels.

Apart from deliberating on measures to shore up state revenue collections, the meeting will also focus on routing of funds for Centrally-sponsored schemes and Central assistance for externally aided projects and containment of non-Plan revenue expenditure, official sources told FE. Union finance minister Jaswant Singh, Planning Commission deputy chairman KC Pant and senior finance ministry officials will also attend the meeting.

The national consultative meeting has been called by the Prime Minister to take a final decision on steps to cut non-Plan expenditure through a freeze in dearness allowance (DA), suspension of bonus and commutation of pension, and reduction in the retirement age of government employees from 60 to 58 years.

The demand for more funds by some states including Tamil Nadu and Andhra Pradesh will also be taken up at the meeting, the sources added.

Finalisation of the debt swap mechanism for the states and the steps required for implementation of value added tax (VAT) regime by states from April 1, 2002, are also on the agenda.

A debt swap scheme via small savings loans and additional open market borrowings would be discussed at the Friday meeting. Using 20 per cent of net small savings this year, an amount in excess of Rs 10,000 crore can be obtained for swapping past expensive debt. Another Rs 10,000 crore can be swapped using additional open market borrowings.

The Union finance ministry proposes the use of 30 per cent of small savings for swapping debt in the next fiscal. With additional open market borrowings at Rs 10,000 crore, an amount of Rs 30,000 crore can be used for debt swap. In 2004-05, small savings worth 40 per cent can be used, and with the same amoung of open market borrowing, about Rs 40,000 crore may be available for debt swap.

If any state wants to go for higher small savings for this year, the incremental amount available for debt swap can be matched by an equivalent increase in other market borrowings.

Sources said the Prime Minister wants the states to discuss critical issues affecting their fiscal health at a national forum so that the steps for improving the situtaion could be finalised through consensus.

They added that the Union finance ministry in its detailed agenda paper for the meeting has outlined the implications of various options in this regard.

Officials said that it would be difficult to freeze DA at the existing level of 49 per cent of the basic salary. They said that the best option at present is graded neutralisation of the price rise at the rate of 75 per cent or 50 per cent in place of current 100 per cent.

At present, neutralisation of price rise in case of DA is done on the basis of the formula prescribed by the Fifth Pay Commission. Based on the formula, the DA hike for Central government employees comes in two installments first one in January and the next in July.

Officials also said that restoration of the retirement age to 58 years is unlikely as it would result in a huge one-time outgo of Rs 25,000 crore, and additional outgo on pension.