The 13th Finance Commission has clearly indicated the quality of expenditure of the government money will be a criterion for devolution of the central fund to the states. During its deliberations with the Orissa government last week, the commission gave enough indication of its view on sharing the central fund with the states.

?The state government should suggest ways to ensure the quality of expenditure for obtaining better output and outcome could be incentivised,? said Commission chairman Vijay Kelkar. He sought the state?s view on the existing arrangements for disaster management with reference to the Disaster Management Act 2005.

The Commission?s three-member team, which was here last week, interacted with chief minister Naveen Patnaik, other ministers and senior officials besides economists and representatives of political parties and trade & industry associations.

During the deliberations, Kelkar laid stress on the quality of expenditure, its output and outcome. To drive home the point, he even took a dig at the state government?s claim on fiscal discipline.

Kelkar, in fact, was quite curious about the expenditure of public money in the state. Describing Orissa?s claim of achieving fiscal surplus position during the last couple of years as ?intriguing?, the chairman said ?the level of capital expenditure as proportion of the GSDP (gross state domestic product) is low?.

He underlined the importance of accelerating the growth of capital as well as social sector expenditure in the state given its relatively comfortable liquidity position and the development needs. Kelkar?s keenness on the quality of expenditure gives an impression that the commission is expected to recommend incentives for the states on the basis of output and outcome of budget expenditure.

The Orissa government, on its part, presented a memorandum projecting a requirement of Rs 2,20,782 crore for the commission?s award period?2010-15.

This includes Rs 1,32,141.64 crore to compensate the non-plan deficit and maintenance grants of Rs 40,572.69 crore. The state government has also sought Rs 1032.70 crore for the education sector and Rs 648.86 crore for health. It has demanded Rs 16,387.36 crore for upgradation and state-specific needs.

The state government also said the corpus of the Calamity Relief Fund (CRF) should be kept at Rs 4,000 crore for the period with a Centre-state contribution ratio of 90:10. According to the projection made for disaster mitigation, Rs 7,431.64 crore should be provided during the period.

Naveen stressed the need for the Commission to go beyond the dispensation made for Orissa keeping in mind the state?s specific needs in view of the emerging economic environment.

He proposed that the state?s share of the divisible pool should be increased to 50% and the Centre should fully pass on receipts from the export duty on iron ore and chrome ore.

Kelkar expressed his concern over the fact that Orissa has the highest poverty ratio in the country and a human development index below the national average. He suggested further consolidation of reform initiatives taken in sectors like power, public enterprises and public finance.

Pointing out that ?the central assistance had still been the state?s main source of income?, Kelkar suggested improving the tax-GSDP ratio and further lowering of the debt-GSDP ratio.