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Pant urges States to maintain fiscal prudence

Our Bureau

NEW DELHI, Sept. 5

THE Planning Commission Deputy Chairman, Mr K.C. Pant, today called for fiscal prudence on the part of State Governments.

Inaugurating a two-day workshop, jointly organsied by the National Institute of Public Finance and Policy (NIPFP) and the Asian Development Bank (ADB) here, Mr Pant conceded that though the extant fiscal transfer mechanism might not have bridged regional inequities, it was also true that its utility in enhancing the quality of public expenditure has largely remained unexplored.

``As such, what needs to be done is simply to modify the design of administering fiscal transfers by making actual disbursals contingent on improvement in the quality of public expenditure,'' he said, and added that there were some efforts in this direct ion.

Even the Eleventh Finance Commission, which crucially rests on the improvements in revenue-account balances of States awards a significant amount upon achieving pre-determined targets.

Mr Pant asserted that it appeared that only an increased weight of specific purpose transfers in total fiscal transfers is what would make Governments more expenditure- conscious.

He noted that the equity criterion based on population and per capita income, which mainly governs Central transfers across States, was embedded in the avowed principle of bridging inter-State inequities. Prosperous States which lose out in the process d eplore the unproductive ends to which funds are applied by less prosperous States and argue for higher weightage to fiscal performance criterion in the devolution formula.

Mr Pant remarked that ``it is another matter that even these prosperous States do not have a recent record of fiscal performance worthy of laudatory mention.''

Among States, the dissatisfied lot is more concerned with the relatively larger fiscal transfers to others. And when local bodies also press their demand for a legitimate share in the ``pie,'' States find themselves in a continuous state of embattlement -- the Centre from the front and local bodies from the rear, he quipped.

Stating that the issue at hand narrows down to what constitutes a ``reasonable'' share in national pie for each Government, Mr Pant noted that perceived inadequacy of Central transfers has led several States to explore new avenues for resource augmentati on.

In this regard, the off-budget intrusions into the debt market administered through State guarantees have provided some resource padding to a few States. The demand for awarding the service tax base to States is also indicative of the growing desire of d irectly accessing the means of resource mobilisation.

Mr Pant said that even the discussion on enabling Centre to levy tax on consumption grows from the requirement of augmenting Central revenues increasingly depleted by fiscal transfers. It is in this regard that there is disenchantment with the institutio n of fiscal transfers and hence the need to restore confidence in the institution of fiscal transfers.

Later, speaking on the sidelines, Mr Pant recalled some positive developments. First, the agreement on floor rates of sales tax by Chief Ministers is more or less followed up another agreement to introduce VAT effective from April 1, 2002. However, he la ced his remarks with doubts about how the States would agree to do away with sales tax receipts as it remains the biggest avenue for revenue.

Asked about Tuesday's meeting convened by the Prime Minister to explore ways to tackle the economic slowdown, Mr Pant said that the Cabinet Secretary has been directed to prepare a shelf of projects which could be taken up immediately for public investme nts.

In his remarks, the ADB India Resident Mission, Mr Frank Polman, informed the workshop that ADB has made a cross-country comparative study on select countries, India, Pakistan and the Philippines to assess the optimal fiscal support required by sub-natio nal Governments to help reduce socio-economic disparities between regions.

He hoped that the study would surely strengthen the Bank's ongoing efforts to formulate better country assistance programmes and address underlying operational problems. It would also provide critical inputs to public sector reform programmes in the thre e select countries, he added.

Mr Poleman noted that alleviation of fiscal imbalances and ensuring equitable delivery of public services would be the prime target of the inter-governmental fiscal transfer policy in India. He said an expeditious reform designed to address the underlyin g fiscal and economic imbalances and ensuring equitable delivery of public services across States would place powerful impetus to the long-term socioeconomic progress.