Fiscal responsibility Bill on the cards in UP

The Uttar Pradesh government will introduce a fiscal responsibility and budget management Bill in the Budget session. It also plans to introduce a medium-term fiscal reform Bill for 2004-09 to reduce the fiscal deficit.

These steps are being considered to overcome the difficult financial situation.

Experts attribute the state's bad financial situation to the rising debt burden. The debt has risen to Rs 1,070 crore, which is 51 per cent of the state gross domestic product (SGDP) estimated at about Rs 2,000 crore, and the interest payment eats up Rs 11,000 crore per year.

The interest payment, salary and pension entail an expenditure of Rs 24,000 crore against the total revenue receipts of Rs 33,000 crore. To meet the development expenditure, the state needs to borrow.

But a part of it is again spent on meeting the revenue deficit of Rs 6,000 crore and very little is left for development expenditure. It has become a vicious circle.

The state's own resources are scarce. The state gets Rs 15,500 crore from own tax resources and for the rest it is dependent on the Centre. The state borrows about Rs 15,000 crore from the Centre, which is 30 per cent grant and 70 per cent debt. It further increases the debt burden.

To come out of the debt trap, the state government has decided to swap the high cost debt with the low cost one and increase income from own resources by 19 per cent over the previous years.

But it received a setback when the Allahabad High Court stuck down the entry tax. It will cost the state about Rs 400 crore. The state government has decided to move the Supreme Court.

A Cabinet sub- committee has also been set up to suggest steps to raise resources. To cut unproductive expenditures, the state government has introduced a five-day week in the secretariat and abolished newly created districts and commissioneries. Creation of a new district cost about Rs 400 crore.

By abolishing these districts, the government wanted to save about Rs 3,600 crore, sources said.

A mid-term review was undertaken in 1999 and the government finalised a plan to reduce fiscal deficit. It set a target of reducing the ratio of revenue deficit to revenue receipts by 5 per cent.

Rita Sharma, principal secretary (finance), told Business Standard the UP development council had created an atmosphere where the private sector would not hesitate in making investments in the state. The government was striving to improve rural education, rural health, infrastructure and provide a safety net for the poor.

The debt trap

• The debt has risen to Rs 1,070 crore, which is 51 per cent of the state gross domestic product estimated at about Rs 2,000 crore
• The interest payment eat up Rs 11,000 crore per year
• The interest payment, salary and pension entail an expenditure of Rs 24,000 crore against the total revenue receipts of Rs 33,000 crore