Kerala   

Revenue deficit to be eliminated

K.M. Tampi

THIRUVANANTHAPURAM: Steps initiated by the Centre are expected to lead to the elimination of revenue deficit and the containment of the fiscal deficit of the States by 2008-09, according to the Economic Survey of the Union Government for 2005-06.

It was in 2000-01 that the Centre implemented the States Fiscal Reforms Facility on the recommendations of the Eleventh Finance Commission (EFC) to incentivise the States to undertake fiscal reforms. Under the scheme, which came to an end on March 31, 2005, all the 28 States had submitted their medium-term fiscal reforms programme and all but Goa entered into memoranda of understanding with the Union Government individually. A sum of Rs.7,217 crores was released from the cut-off fund of Rs.10,608 crores to the States till the cut-off date (March 31, 2005). The States, excluding Delhi, in aggregate had registered an improvement of 14.95 percentage points in the ratio of revenue deficit to total revenue receipts during the EFC award period (2000-01 to 2004-05) over the base year of 1999-2000.

The Economic Survey pointed out that as per the latest information available for 2004-05 (pre-actual), nine States, Bihar, Chhattisgarh, Jammu and Kashmir, Karnataka, Madhya Pradesh, Manipur, Mizoram, Nagaland and Sikkim, were expected to be revenue surplus.

The Twelfth Finance Commission (TFC) discontinued the facility beyond March 31, 2005 and suggested a debt consolidation and waiver scheme. The TFC's recommendations for restructuring public finances envisaged a positive growth dividend through fall in dissavings. The major reform initiative that underpinned the TFC award was the recommendation for a debt consolidation and waiver scheme for States linked to fiscal responsibility. Under the debt relief scheme applicable to all States during the award of the TFC, all Central loans contracted till March 31, 2004 and outstanding as on March 31, 2005 got consolidated as loans for a fresh period of 20 years payable in 20 equal annual instalments at a reduced interest rate of 7.5 per cent effective from the year in which the Fiscal Responsibility and Budget Management (FRBM) legislation is enacted by the States. The TFC had estimated that this would benefit the States in the entire period of its award through lower interest payments of Rs.21,276 crores and through relief on deferment of principal repayment of Rs 11,929 cr ores.

A second scheme of debt write-off under the TFC award linked to fiscal performance was calibrated in a manner that incentivised a self laid down fiscal correction path on a year-on-year basis leading to elimination of revenue deficit and containment of fiscal deficit by 2008-09.

The Survey reported that as on February 2, 2006, 18 State Governments passed their FRBM Acts and 13 had drawn up their fiscal correction path.

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