Tenth Plan for adoption of Fiscal Responsibility Bill by the states

The Tenth Plan has pitched for the adoption of Fiscal Responsibility and Budget Management Bill by the states. The Plan has also made a case...

The Tenth Plan has pitched for the adoption of Fiscal Responsibility and Budget Management Bill by the states. The Plan has also made a case for imposing legislative or administrative ceiling on state guarantees. These steps are aimed at improving state finances.

Although Maharastra has decided to introduce its own Fiscal Responsibility Bill in the Winter session of Legislative Assembly, other states are yet to take a view on the subject. Fiscal Responsibility Bill of the Maharashtra government is aimed at freeing the fiscal management from political compulsions and competitive populism. Karnataka has also initiated some measures to limit borrowings, but they are short of the fiscal responsibility legislation. Unfortunately, the Centre has not yet been able to successfully push the Bill in the Parliament.

Even the targets mentioned in the Bill have become irrelevant and had to be re-worked. The Bill envisaged reduction of fiscal deficit to 2 per cent of GDP by 2006 and revenue deficit to nil by 2006.

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However, that does not seem to be happening. According to Dr Saumitra Chaudhuri of ICRA, ‘‘all teeth of the Fiscal Responsibility Bill have been pulled out and in the current form it will not be able to deliver the anticipated results.’’

According to the draft document of the Tenth Plan, the Fiscal Responsibility Bill needs to be adopted by states with the aim of restricting borrowings. This is essential to contain debt to GDP ratio at current levels. This will also help in alleviating the interest burden of the states. The Tenth Plan prescription for states also include steps for improvement in internal resources of the PSUs. This, according to the draft, needs to be achieved by the implementation of reforms in the power sector and the reduction in the burden of contingent liabilities on state budgets.

Total liabilities of states have gone up from 15.8 per cent of GDP in 1996-97 (Rs 2,43,526 crore) to 25.9 per cent in 2001-02 (Rs 5,91,831 crore).

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