Although the prime minister Atal Behari Vajpayee had announced at the NDC meeting on February 19, that the sub-committee of the chief ministers would be formed and promised that the meeting be held within a fortnight to find solutions to problems concerning state finances, it took about a month for the central government to hold the first meeting.

The meeting called by finance minister Yashwant Sinha would be attended by the chief ministers of Rajasthan, Ashok Ghelot; Tamil Nadu, M Karunanidhi; West Bengal, Jyoti Basu; Assam, P K Mahanta; Jammu and Kashmir, Farooq Abdullah; Gujarat, Keshubhai Patel; and Uttar Pradesh, Kalyan Singh.

The sub-committeewas formed following the issues raised by various states at the NDC meeting concerning the deleterious impact of pay revision on state government finances. Some states had accepted the recommendations of the Fifth Pay Commission in toto, while the others were forced to increase the salary of their employees in tandem with the pay panel report. For the states it became almost impossible not to enhance the salaries of their employees despite the fact that many of them were not in a position to bear the additional burden.

To provide immediate succor to the states, the central government had asked the Reserve bank of India (RBI) to revise the ways and means advances to states from March 1, 1999 against the earlier decision of revising the same from April 1, 1999. The short-term measure only marginally helped the states, which have been consistently indulging in competitive populism at the cost of losing revenue, to tide over the fiscal problems.

The NDC sub-committee has been formed with the intention ofprimarily addressing the medium-term fiscal problems of the states and suggest measures for reducing expenditure and raising resources. According to official sources, the states need to take hard decision to put their houses in order and there were no soft options.

The officials said that even at the NDC meeting the issues concerning levying user charges and setting up of Electricity Regulatory Commission were discussed and it was time for the states to act on them. The NDC, in fact endorsed the recommendations on the committee on power. However, many states have yet to set up electricity regulatory commissions.

The NDC, the officials said, had also suggested that while revising the administered prices of essential commodities, a balance was needed to be struck between the interests of farmers and consumers, particularly the poorer sections of the society, and the macro-economic imperatives of fiscal stabilisation and control of inflation.

The NDC sub-committee of seven chief ministers, the officialshoped, would go beyond seeking more assistance from the centre and work out a set of hard measures, which could be collectively implemented by the state governments, to set state finances in order in the medium term.