• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

FEW STATES ARE in the comfort zone vis-à-vis finances. With deficits running high, their recent report cards look depressing. Its coffers empty, the Orissa Government has little breath to manage its affairs. By its Finance Minister's own admission, the State survives on overdraft, and ways and means advances round the year. If that is bad performance for a laggard State, the big ones are not doing any better. Hardly a day passes without the Kerala Chief Minister reminding everyone of the State's insolvency. He even concedes that funding institutions are keeping their distance. Ditto for Maharashtra, whose reputation is fading fast; it narrowly escaped being declared a defaulter by the RBI the other day. Its Chief Minister may be bullish on the release of the promised World Bank assistance, but the fact remains that the government has egg all over its face.

Thepolitical system, as it exists today, dictates what the governments should do, and populism is what it dictates. No problem if they have to borrow to service their debts. No problem also if they have to spend the lion's share of their annual revenues on paying salaries/pensions and interest on borrowings squandered. It is well-documented how the outgo on these non-discretionary items has multiplied in the past five years. Fiscal framework and restructuring plans will have little meaning without concrete action on the ground. For all its claims of higher growth, Andhra Pradesh has more often than not announced big Plan outlays only to slash them later. And the deficits are only going up. Tamil Nadu presents a curious case. Always looked upon as a better-managed State, it only flattered to deceive. The new Government some time ago presented a white paper on the State's finances. It was a splash of red. The Government had appeared determined to redeem the situation, but its responses fell far short of the requirements. It did hike bus fares, but backtracked on the PDS subsidy issue. Not only that, it left out the freeloading farmers from the power tariff hike. Faced with a severe crunch, the State does not sound confident of achieving the Plan targets this year and may seek a cut in the annual outlay.

Abold leadership, unafraid of taking politically unpopular decisions, must think up specific and realistic measures to increase revenues and curb unnecessary expenditure and have them embedded as much in their psyche as in the fiscal consolidation plans. The task is not easy in an economy wracked by recession, and when tax receipts are sluggish. But it can be given a shot-in-the-arm by removing excessive exemptions, and by improving compliance and collection with help from technology. An integrated approach is needed to address the huge liabilities in the system. Loss-making state PSUs are a big drain as are non-merit subsidies. Downsize governments must. Otherwise there is no way of reducing salary bills. Pension reform is no small matter either. A mammoth Voluntary Retirement Scheme is called for. Alternatively, the existing bureaucracy can turn its act around, become an active facilitator of economic activity rather than the cussed block it is often perceived to be. If any rise in the wages of bureaucracy is tied to a rise in the state gross domestic product, the necessary incentives for achieving growth get built in. As tax revenues too move up in tandem with economic growth, the budgets will look a lot healthier.

Send this article to Friends by E-Mail

Stories in this Section
Sorry state

Copyright © 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line