Rs 50k-crore performance fund for states sought

Written by Sanjay Jog | Mumbai | Updated: Feb 22 2009, 04:02am hrs
The Maharashtra government on Friday made a strong pitch for the creation of a separate but substantial pool of fund worth Rs 50,000 crore every year to be distributed to states on the basis of performance against predefined efficiency parameters applicable for the period 2010-2015.

The government in its presentation to the 13th Finance Commission chaired by Vijay Kelkar suggested there must be performance-based incentives, where special considerations necessitate greater help and it should come with measurable results within a limited time frame on a tapering basis.

Making a strong plea for amendment to the existing nature of devolution of funds to states, the state government keeping in view the different stages of development in various states said the states could be divided into three different groups.

In each of these groups a state could compete with their peers on the basis of performance against predefined efficiency parameters to maximise their share from this earmarked fund. Independent verification of the claims made by the state governments by reputed national institutions could be made mandatory accepting the claims of the state governments.

State chief minister Ashok Chavan said the excessive weightage has been traditionally given to factors like economic backwardness. Time has come to give due weightage to factors such as tax efforts, fiscal discipline and decentralisation efforts. This would truly reward the states that perform, he noted.

Chavan and the state finance minister Dilip Walse-Patil brought to the Finance Commissions notice that Maharashtras share in divisible pool has steadily declined over the years from high of around 14.28% given by the fourth Finance Commission to 4.63% as a result of award from the 11th Finance Commission and then it marginally increased to 4.99% after the award of 12th Finance Commission. Such a sharp decline has a serious disincentive effect and leads to a feeling that progressive states do not get their due share despite putting in better tax efforts and efficiency in administration, the duo said.

On goods and services tax (GST), the state government has pleaded for a single rate except for the high value goods. According to the government, there should be a common upper ceiling on the threshold for registration for GST across all states and the dealers should file a single return electronically through the internet.

On impact of implementation of the Sixth Pay Commission report in the state, the government said its finances are going to be stressed from this financial year for the next five years. Since the states inability to live up to targets on revenue/fiscal deficits is due to this exogenous factor, it may be necessary to view the states performance exclusive of this factor.

Even ability of the state to raise additional debt is going to be constrained due to a sharp increase in revenue expenditure and hence the need to limit the interest burden so as not to go into revenue deficit, the government added.