Don’t miss the latest developments in business and finance.

Centre to bankroll state reforms

Image
P Vaidyanathan Iyer New Delhi
Last Updated : Feb 06 2013 | 9:04 PM IST
 
Finance ministry officials said the Centre would take on its books states' burden on account of reform measures like voluntary retirement schemes of public sector undertakings (PSUs), downsizing of PSUs, debt restructuring and other adjustments. "It will be through a blend of grants and additional open market borrowings," an official told Business Standard.
 
These reform costs will be in addition to the Rs 10,607 crore incentive fund set up for states, following the recommendations of the Eleventh Finance Commission. For special category states, 80 per cent of the costs will be met by the Centre, but for other states, the support will be only to the tune of 60 per cent.
 
These new incentives were finalised after the finance ministry's mid-term review of states' fiscal reforms between 2000-01 and 2004-05 revealed that they had fallen short of targets. The assessment showed that states had reduced the ratio of revenue deficit to revenue receipts by around 10 percentage points, against 15 percentage points targeted between 1999-2000 and 2002-03.
 
The officials said states like Uttar Pradesh, Karnataka and Andhra Pradesh, which had received structural adjustment loans from multilateral institutions like the World Bank and the Asian Development Bank, would not be eligible for the new facility.
 
According to the officials, the Centre has released Rs 2,714 crore from the incentive fund during the last two fiscals. In addition, it has allowed open market borrowings to the tune of Rs 2,363 crore for seven states, including Tamil Nadu, Andhra Pradesh, Kerala and Orissa.
 
For special category states, the ministry has modified the minimum improvement to qualify for release from the incentive fund to a 2 percentage point improvement every year in the ratio of revenue deficit to revenue receipts, against 5 percentage points earlier. For other states, it will remain at 5 percentage points.
 
For voluntary retirement schemes of PSUs to be closed or departments to be downsized, the Centre's support to states will be in the form of 50 per cent grant and 50 per cent additional open market borrowings. For special category states, the assistance will be in the form of 80 per cent grant and 20 per cent borrowings.
 
In the case of downsizing of PSUs and restructuring to ensure their financial viability, the costs will be met through allocation of additional market borrowings.

 

Also Read

First Published: Sep 15 2003 | 12:00 AM IST

Next Story