The Hindu : National : FICCI for law to end States' revenue deficits

Online edition of India's National Newspaper
Monday, Dec 20, 2004

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FICCI for law to end States' revenue deficits

By Our Special Correspondent

NEW DELHI, DEC. 19. T he Federation of Indian Chambers of Commerce and Industry today sought enactment of legislation on the lines of the Fiscal Responsibility and Budget Management Act to eliminate the States' revenue deficits.

A FICCI study titled `State Finances in India: A move towards Sustainability' favours cap on guarantees and said there was a need for putting restrictions on the amount of guarantee cover that States could provide and legislation to check the growth of guarantees.

At the same time seeking a cut in wasteful spending, the FICCI said, "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 said the Debt to Gross State Domestic Product (GSDP) ratio was an area of concern as it surged from 18.7 per cent in 1993-94 to 29.1 per cent in 2003-04 with States like Uttar Pradesh, Bihar, Madhya Pradesh and Rajasthan running up "unsustainably high" debt because they continued to borrow for financing their current spending.

It also called for implementation of Value-Added Tax in all states with a single rate and uniform classification of items as part of efforts to improve revenues. It stressed reduction of tax rates on property transactions and introduction of professional tax.

Noting that States in India are responsible for a higher proportion of spending than any other developing country, barring China, it said the share of States in public health spending is around 90 per cent, public education 86 per cent, irrigation maintenance 97 per cent, road maintenance 39 per cent and the total government capital expenditure was at around 57 per cent.

In order to cut down on the State's expenditures, the chamber recommended hastening of reforms in the power and irrigation sectors and called for rationalizing power tariff structure and cut in transmission and distribution losses, which would be a step towards privatising and introducing commercial sense in the power sector.

Pointing out that the public-private wage differential as one of the highest in India, it asked State Governments to adopt a policy of real wages and restrain fresh recruitment.

The FICCI also called upon the Government to lower the entry wages and take steps to make employment contract-based.

The study also noted with concern the fact that there had been a significant deterioration in revenue generation over the years and asked the Government to remove concessions and exemptions, which would help in fuelling revenue reforms within the country.

"Subsidised user charges should be made available to the needy and should be restricted only to health services and private education," it said, adding that State Governments should limit their borrowings from the Central Government and the market and repay high interest loans with the help of the Centre's assistance whenever possible.

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