The Hindu Business Line : FICCI study outlines roadmap for toning up State finances

THE Federation of Indian Chambers of Commerce and Industry (FICCI) has expressed concern over the steady rise in the debt-gross State domestic product (GSDP) ratio of States during the past decade, from 18.7 per cent in 1993-94 to 29.1 per cent in 2003-04, as they continue to borrow to fund current spending.

As a result of this, economically backward States such as Bihar, Uttar Pradesh, Madhya Pradesh and Rajasthan are running up unsustainably high debt levels.

A FICCI study, entitled `State finances in India: A move towards sustainability,' has cautioned that unless the quality and quantity of productive expenditure is drastically improved through restructuring and management of expenditure, revenue reforms and mobilisation, India's growth and human development will take a hard knock.

The study notes that States in India are responsible for a higher proportion of general Government spending than in any other developing country, except China.

For instance, the share of States in public health spending is reckoned at 90 per cent, public education 86 per cent, irrigation maintenance 97 per cent, road maintenance 39 per cent and total Government capital expenditure 57 per cent.

Outlining the roadmap to put State finances on an even keel, the study calls for time-bound elimination of revenue deficits by bringing in legislation on the lines of the Centre's Fiscal Responsibility and Budget Management Act.

It has also urged for introduction of measures for restraining increase in guarantees by putting restrictions on the amount of guarantee cover that States can provide and legislation to check the growth of guarantees.

On the revenue reforms front, the study has suggested implementation of value-added tax (VAT) regime, preferably in all States, with a single rate and uniform classification of items.

Regarding expenditure reforms, the study has recommended hastening reforms in sectors such as power and irrigation, undertaking privatisation of unviable and loss-making public sector undertakings (PSUs) in a phased manner, and earmarking the privatisation proceeds for social sector and development-related expenditure.

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