"The Centre and every state, are borrowing not only to finance their developmental activities but also to cover a significant portion of their non-developmental expenditure. This is a recipe for fiscal disaster," Pant said, addressing the 48th meeting of the National Development Council (NDC) here.

Outlining the NDC agenda, he said the Ninth Plan aimed at growth with social justice and equality, for which the economy needed to grow by seven per cent in the remaining three years of the plan (1997-2002).

Pant admitted that the overall 6.5 per cent growth target for the plan period was lower than the seven per cent envisaged in the approach paper due to an economic slowdown in the first two years.

However, the level of publicsector outlay at Rs 8,59,200 crore at 1996-97 prices and consequent investments in the remaining three years called for concerted efforts to improve the fiscal situation at the Centre and in states, he said.

Given the scarcity of resources, Pant said enhancing revenues was top priority, adding states must shun tax competition and go in for a harmonised tax regime and rationalised service charges.

The mounting interest burden was eating into revenue available for financing the provision of public goods and services, Pant said, adding the situation would be unmanageable as more states implement the Fifth Pay Commission recommendations.

Giving a detailed presentation of the fiscal position of the 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.

Over 45 per cent of central revenue receipts was taken up by interest payments while the states' revenue deficit were pegged at an alarming Rs15,000 crore on an annual basis.

This, along with the central revenue deficit of Rs 14,000 crore, was cause for concern and both the Centre and states have to make massive efforts to augment their resources to come out of this situation, he said.

Pant expressed concern over the sharp slippages in tax to State Domestic Product (SDP or the state's economy) ratio, saying the main growth constraint was not the availability of resources but the efficiency with which these are used.

"Due account has to be taken of the Centre's fiscal position which is extremely difficult, with a fiscal deficit that has become too large," he said, pointing to poor accountability on spending.