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States diverting fuel cess funds to meet revenue expenses

C. Shivkumar

"Diversion of such dedicated funds to funding revenue expenditure had led to arrears in maintenance in most of the State and national highways."

Bangalore , Dec. 1

STATES have quietly begun transferring funds received from their share in the diesel and fuel cess for meeting their respective revenue expenditures.

States receive close to about Rs 3,000 crore each year as part of their share in the fuel cess. This share of the States is determined under the Central Road Fund (CRF) Act amended in December 2000. These funds are essentially to be used for meeting the maintenance expenditure of the State highways.

Part of the funds released from the CRF was also to be used for meeting the maintenance expenditure of highways that were outside the purview of the National Highways Authority of India. Under Government guidelines, the State public works departments were responsible for maintenance of some of the national highway using Central funds.

Sources said the diversion was possible because few States had earmarked the CRF resources. Under the amended CRF, funds raised through the twin cesses on diesel and petrol amounting to about Rs 1.50 per litre was to be utilised only for highway development in the country. However, none of the States currently have any such statutes in force. Instead, the sources said, funds received from the CRF as part of the States' share was credited to the consolidated fund of the respective States and utilised for meeting the revenue expenditure. States fear that that earmarking the resources would lead to an increase in fiscal deficits. The sources said that most States, strapped for cash were utilising these funds for payment of salaries, debt service obligation and subsidies.

None of the States were willing to either rationalise these components of expenditure or opt for increasing their revenue mobilisation efforts. In fact, it was the absence of both these kinds of efforts that was responsible for the fiscal mess at the State level, the sources said.

Diversion of such dedicated funds to funding revenue expenditure had led to arrears in maintenance in most of the State and national highways, the sources said. Maintenance arrears had accordingly led to severe deterioration of the State highway network and a consequent escalation in costs or rehabilitation. It was this deterioration that had recently provoked protests from the information technology industry in Karnataka.

The deterioration had also triggered concerns in the Planning Commission, the sources said, which favoured earmarking of the CRF share to States only for meeting the arrears in maintenance and for development of new highway projects.

But some of the States like Harayana favoured softer options. States were in fact pushing for conversion of State highways into national highways and at the same time also wanted a greater share in the CRF, linked to the actual collection from the respective States for meeting the maintenance arrears, the sources added.

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