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RBI asks States to contain expenditure

By Our Special Correspondent

MUMBAI, JAN. 24. The Reserve Bank of India today asked the State governments to contain their expenditure and enhance revenue with both tax and non-tax measures to avert the fiscal deterioration of State governments.

Addressing a meeting of State Finance Secretaries here Rakesh Mohan, Deputy Governor of the RBI, stressed the need to avoid defaults on state guaranteed bonds. In the context of restructuring of loans of State governments, he said that rescheduling or renegotiation in the statutory liquidity ratio (SLR) bonds would undermine the sovereign status of these bonds.

On the issue of bonds issued by State Financial Corporations (SFCs), Dr. Mohan suggested that the States could consider swapping the high cost debt of SFCs if they so wished.

Earlier, addressing the meeting the RBI Governor, Y. V. Reddy, referring to the report on Pension Reforms presented by a Group of Finance Secretaries, said the problem of future liabilities of pension was huge and not one that could be resolved overnight. Dr. Reddy suggested that the Finance Secretaries should rather first aim at creating appropriate institutional structure so that the problem could be handled smoothly in the medium-term.

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