RBI asks States to make efforts to augment revenue receipts

Inadequate rise in tax receipts, negative or negligible returns from public investments due to losses in public sector undertakings, increased expenditure on salaries due to pay revisions, large subsidy payments and higher pension outgo were some reasons for such a fiscal position, RBI said.

Notwithstanding the paucity of resources, the States were required to undertake increasing responsibilities, which include development of social and economic infrastructure and ensuring law and order. In the face of decelerating revenues, States had to resort to high level of borrowings, it observed.

On getting adequate fund for developmental activities, RBI said the near stagnation in tax-gross domestic product ratio of States at around eight per cent throughout 1990s was a matter of concern.

Strategy focussing on rationalisation of tax rates, better tax compliance, improved efficiency in tax administration and review of tax exemptions would be necessary to augment revenue receipts, RBI added.

RBI said the proposed introduction of State level value added tax (VAT) with effect from April 2003 assumes critical importance. Further, in view of increasing importance of services sector in GDP, exploitation of tax potential of services would enable states to augment their revenue receipts.

In addition, adoption of appropriate user charges for the services provided by States would go long way in facilitating higher non-tax receipts, it added. RBI said declining share of developmental expenditure indicates deterioration in the quality of expenditure. As the States have an important role in development of social and economic infrastructure, expenditure compression should focus on non-essential nature.

Steps taken by several States to restrict fresh recruitment and filling up existing vacancies and also to cut administrative expenditure merit attention, it added.