Vajpayee also drew attention to the fact that the States' own contribution to plan financing has been very low. "States are increasingly borrowing even to finance their current consumption," Vajpayee said in his opening remarks to the National Development Council (NDC) meeting here.

Calling for greater fiscal discipline and responsibility at both the Central and the State level, Vajpayee said, "faster and widespread development is the medicine for many of the ills of the economy, polity and society."

The 48th meeting of the NDC has been called to approve the Ninth Five Year plan that seeks to achieve a seven per cent economic growth in the remaining three years of the Plan periodbetween 1997-2002.

Seeking all-round austerity, Vajpayee said, "Can we accomplish this without a political consensus to end competitive populism."

Vajpayee criticised the increasing tax competition among States to lure investments and said such policies were harmful as States had lost revenue but hardly influenced investment decisions. He said that this approach should be replaced with better infrastructure, quick decisions and a friendly environment which is what ultimately attracts investors.

Stating that untargeted and unintended subsidies often led to distortions in resource allocations, he said: "Today there is a need and scope to raise resources through levying reasonable electricity tariff and irrigation charges." No government can afford to provide costly services free of cost universally.

Vajpayee admitted that some of the decisions of the Centre had serious, though indirect repercussions on States' finances, and cited the example of the Fifth Pay Commission's recommendations. "Adoption ofthese at the Centre has had a snowballing effect on States," he said assuring states of the Centre's consideration in this regard.

Expressing concern over mounting expenditure of the Centre, Vajpayee asked his Cabinet colleagues to manage their resources more judiciously. He suggested that there should be a performance audit of our resources rather than the expenditure audit.

Also speaking on the occasion, Planning Commission deputy chairman K C Pant today warned that the country could face a fiscal disaster owing to extensive government borrowing and mounting subsidies.

Pant admitted that the overall 6.5 per cent growth target for the Ninth Plan period was lower than the seven per cent envisaged in the approach paper due to the economic slow down in the first two years.

Pant also highlighted the mounting interest burden which was eating into the revenues available for financing the provision of public goods and services. Giving a detailed presentation of the fiscal position of both Centre and States,he said State borrowings accounted for about 115 per cent of plan expenditure while it was over 140 per cent in the case of the Central government.

Several Chief Ministers today criticised the Centre for the recent hike in prices of foodgrains and other essential commodities and demanded a rollback. The Chief Ministers were, however, divided on criterion for allocation of funds for poverty alleviation schemes.

While some Chief Ministers demanded a complete rollback of the revised prices of wheat, rice and sugar through the public distribution system (PDS) and administered price of urea and cooking gas, others said that it could be reduced partially to protect the lower income groups.