States show greater fiscal responsibility than Centre

State governments have shown greater fiscal responsibility in the last financial year. The combined gross fiscal deficit (GFD) of all states...

State governments have shown greater fiscal responsibility in the last financial year. The combined gross fiscal deficit (GFD) of all states was contained at Rs 1,21,629 crore in 2004-05. However, the GFD reduction in 2004-05 was lower than budgeted, according to the revised estimate figures.

Government sources ascribed the improved fiscal management to a combination of factors — enhanced transfers from the Centre in the last year of the debt swap scheme, revenue expenditure curbs and increase in tax and interest receipts.

Significantly, the reduction in the deficit has been substantially sharper than the Rs 1,693 crore projected by the Twelfth Finance Commission (TFC) for 2004-05. It may be noted that 2004-05 is the first year of the TFC-mandated fiscal correction path.

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As per the data, states’ GFD declined from Rs 1,41,010 crore (5.1 per cent of the GDP) at the end of 2003-04 to Rs 1,21,629 crore. The deficit was budgeted to decline to Rs 1,11,852 crore (3.6 per cent of GDP). The TFC, on the other hand, had reckoned the defcit at Rs 1,39,317 crore as of March 31,’05.

States also witneseed a major decline in their outstanding liabilities on account of central loans from a level of Rs 1,84,268 crore to Rs 1,28,795 crore during 2004-05.

As for individual states, Maharashtra (Rs 18,484 crore), Uttar Pradesh (Rs 13,686 crore) and West Bengal (Rs 11,875 crore ) reported the largest abosolute GFD figures at the end of previous fiscal.