NEW DELHI, FEBRUARY 18: The Eleventh Finance Commission is believed to have asked the Centre to provide about Rs. 16,000 crore to states in 2000-01 by way of loans and advances to enable them to overcome their present financial crisis.The commission submitted its interim report to the government on January 15, commission sources said.The interim report, among other things, provides a brief account of the expenditure for maintenance of capital assets and plan schemes that are to be transferred to non-plan schemes by the current financial year.Sources disagreed that 11th Finance Commission report could be overlapping due to the Government's decision at this stage to make proposals for modifications in the 10th finance commission.The sources did not rule out the 11th Finance Commission report being in line with the modifications sought by the government in the 10th Finance Commission.The government earlier this month proposed modification in the 10th Finance Commission to change the terminology from gross proceeds to net proceeds.In this regard it decided to re-introduce a constitutional amendment bill to implement the alternative proposal for devolution of 29 per cent of central taxes to states as recommended by the 10th Finance Commission.Though this may result in up to Rs. 2000 crore reduction in the total devolution to states, government says there is a provision to enhance the total devolution of net proceeds to compensate the loss.While this recommendation is to be effective from April 1, 1996 to March 31, 2000, the recommendations of the 11th Finance Commission which has been mandated to give its final report by June 30, 2000 will cover the five year period with effect from April 1, 2000.State finances had come under acute pressures due to effects of the pay revision for Central government employees based on Fifth Pay Commission's recommendations and the additional burden of consequent pay hikes on states was roughly estimated to be about Rs. 20,000 crore annually.The commission, headed by A M Khusro, had recently held discussions with the Planning Commission on the financial health of the states and to consider issues like plan revenue expenditure and maintenance expenditure of capital assets and plan schemes.A M Khusro has been expressing worry over the reluctance of the states to impose additional taxes as a measure to reduce the ever increasing revenue deficit.Stating that defence outgo, subsidies, interest and salaries form a major chunk on the expenditure for the Centre and the states, Khusro told a recent meeting that he favoured a policy of phasing out subsidies over a period of time.Increasing some desirable subsidies and reducing non-desirable subsidies should be the merit of the day, he said.During the meeting with finance commission members, the plan panel expressed its inability to provide projections on revenue expenditure saying that it finalised the plan outlays for the states without making allocations separately for revenue and capital expenditure.However, the two sides decided to set up a small committee headed by Dr A Bagchi, member finance commission, for sorting out the issue relating to plan revenue expenditure and examine the modalities and unified approach by the two bodies.The planning commission has also expressed grave concern over the fast growing fiscal deficit of the states which shot up to 4.3 per cent of gross domestic product in 1998-99 from 2.8 per cent in the previous year.The plan panel has also voiced alarm over the dangerous trend of decline in the tax-GDP ratios of high income states like Punjab, Maharashtra, Gujarat and Haryana in the recent past.It said that the growth in revenue expenditure had been outpacing that of receipts, forcing many of the states to go for expensive borrowing to meet even day-to-day needs including the salary bills.
