Reforms: States get Centre to buckle

While the formula would reduce the debt burden of states by Rs 37,000 crore, in return the finance ministry wanted the states to agree to prepay a large of their debt every year—in other words, they’d have to curb expenditures.

Speaking at the meet, finance minister Jaswant Singh said that ‘‘Issues of debt-swap, DA, bonus and commutation of pension require broader consensus which is not there at present and a decision on these has been deferred.’’

There was, however, a bit of good news on the reforms front. One, the state chief ministers agreed to implement VAT from April 1 next year. Consensus was also reached on transfer of majority of centrally sponsored schemes to states.

And, in a separate statement, labour minister Sahib Singh Verma announced that the government would be tabling a comprehensive new legislation aimed at rationalising existing labour laws and protecting the unorganised sector in the budget session.

In the meeting, the states which agreed with the Centre’s proposal to DA included Tamil Nadu, Orissa, Haryana and Rajasthan while Madhya Pradesh, North East states except Assam, and Karnataka, asked the Centre to chip in if DA is increased. The cash strapped Kerala chose to remain silent.

In his opening remark, Vajpayee stressed for a political consensus between the Centre and the states on critical issues. ‘‘I must stress—and I do so at the cost of repetition—that unless we broaden the area of political consensus between the Centre and states, on critical developmental and governance reforms, the problems we currently face would get compounded,’’ Vajpayee said.

Noting that the fiscal health of states has been a matter of much concern to all policy makers for some time now, Vajpayee said the fiscal deficit of the centre and states together is unacceptably high.

Among other issues discussed at the meeting, on the recent SC judgement on hiking pay scales of subordinate judiciary, finance minister Jaswant Singh said that the matter would be taken up in an appropriate manner after discussions with the state governments as it involved an expenditure of Rs 14,000 crore which had to be borne by them.

Regarding the debt-swap, the finance minister said that states have expressed some difficulties in the scheme during the current year due to cash flow problems.

Singh emphasised that the states’ borrowings would have to be brought in line with the prudential debt limits indicated in the state fiscal reform programmes. The issuance of government guarantees also has to be contained.

Rise in debt servicing obligations by state-owned enterprises, backed by state government guarantees are a matter of concern, he said. Announcing that the overdraft regulation scheme for states is being reviewed, Singh said the RBI has appointed a committee under C Ramachandran, former expenditure secretary, to go into the issue.