| In a letter written to the Planning Commission, the ministry has said it has decided to accept the recommendations of the finance commission. |
| The Planning Commission, on its part, has written back, asking for clarifications on whether the market will be able to support the quantum of borrowings that states will require. Initial estimates put the additional requirement for 2005-06 at Rs 35,000 crore. |
| It has also said United Progressive Alliance Chairperson Sonia Gandhi had asked the commission to increase the Plan commitment on eight National Common Minimum Programme-related schemes to Rs 40,000 crore against Rs 25,000 crore in the current fiscal year. |
| The TFC had recommended doing away with central loans to states and letting them borrow from the market. It had also proposed that for normal category states, the rate of interest on outstanding loans be reduced to 7.5 per cent and the repayment period extended to 20 years. |
| For special category states, it has suggested writing off a significant portion of their debt. |
| "The proposal is a sound one. For one, states can get loans cheaper than what the Centre borrows from the market and lends to them. Also, it is the only way to introduce some discipline into state finances," said NJ Kurian, noted expert on state finances and principal consultant, National Institute of Public Finance and Policy. |
| "The Reserve Bank of India would have to decide to what extent market discipline would operate on state borrowings. But it would be reasonable to expect that the risk-weighted interest paid by states with a bad fiscal situation would be higher than that faced by those with good fiscal parameters," he said. |
| Traditionally, states having political clout in Delhi, had gotten used to being bailed out by the Centre and that the move towards a credit rating of states was a good one, he added. |
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