States agree to prune centrally sponsored schemes

Giving a boost to the government's fiscal strengthening drive, states have agreed to a drastic pruning of centrally-sponsored schemes from 147 to 59, as suggested by the BK Chaturvedi's committee report. States have also lent their support to the re-classification of revenue and capital expenses as suggested by a panel headed by C Rangarajan, chairman of the Prime Minister's Economic Advisory Committee. The move will help the government substantially lower its revenue deficit, pegged at 1.8% of GDP in the current year.

Finance Ministers of 15 states endorsed these proposals at a six-hour-long pre-budget meeting with Finance Minister Pranab Mukherjee. While the states came with a long list of demands in pre-Budget consultations and sought a growth-centric Budget, Mukherjee sought their support in meetings the challenges posed by high inflation, increasing fiscal deficit and slowing growth.

Majority of states favoured the Rangarajan Committee's recommendations on doing away with the current system of classification of expenditure into plan and non-plan categories. The Rangarajan Committee had said that the present classification of expenditure into plan and non-plan leads to several contradictions. This classification leads to the neglect of the maintenance of assets such as roads. It also leads to an imbalance between the creation of physical infrastructure such as schools and hospitals, and creating the manpower required to provide services, such as doctors or teachers.

On the sidelines, Sushil Kumar Modi, Chairman of the empowered Committee of States' Finance Ministers, said, ‘funds should be routed through States. In such a situation, such expenditure can be audited by the Comptroller and Auditor General (CAG).’Further, the Deputy Chief Minister of Bihar Sushil Modi also asked the Centre to give funds to the states directly for various social sector schemes. In such a situation, they will have greater flexibility in designing effective schemes.

States pushed for increasing the open-market borrowing limit as it would give them the flexibility of borrowing at any point of time in the fiscal without taking prior permission. The state finance ministers also sought creation of an independent commission to identify below poverty line families, speedy release of compensation for central sales tax phase-out and removal of the professional tax cap. Some states also made their apprehensions clear about sharing any financial burden for implementing the Food Security Act. ‘The states having the larger incidence of poverty are also the poorest states in India and, hence there should be proper budgetary provision by the Central government for implementing the landmark Food Security Bill,’ said Sushil Modi.

The states also said banking services, especially regarding sanction and non-sanction of loans to individuals, should be placed under Citizens’ Charter so that the time limit is fixed for delivery of specific services. The participants also said that the government should consider fiscal incentives to encourage investment. Many state finance ministers were of the view that the Union Budget for 2012-13 should be growth-centric and employment centric as the country could not afford to have jobless growth.

It was further stated that the focus should be on issues pertaining to boost agriculture production, urban infrastructure facilities and power development among others. Some finance ministers highlighted the need for higher investment in providing affordable housing, drinking water facilities, irrigation, flood management, welfare of minority communities and those living in hills and the north east. Finance Minister will hold another meeting with his state counterparts next month to sort out issues relating to CST compensation and implementation of the goods and services tax.