Poor states need more help

The Planning Commission wants a case-sensitive approach to debt management of states. This is because it feels the recommendations made by the Twelfth Finance Commission regarding debt write-off are biased against the worst-off states.

In its mid-term appraisal of the Tenth Five-Year Plan, the Plan body said the package recommended by the commission was inadequate for debt- stressed states because of the high and inelastic interest burden on them. Some, in fact, will not be able to erase revenue deficit and will, therefore, become ineligible for commission benefits.

These states will also have to incur higher costs in future market borrowings. This is because of their bad fiscal position.

"The balance sheets of states need to be cleaned before they approach the market for loans," the review says.

The Finance Commission has offered debt relief only on interest on central loans. The debt write-off is also limited to states eliminating revenue deficit.

It also says that if states are to have the option of not borrowing from the National Small Savings Fund (NSSF), the maturity intermediation currently made by this fund should be removed.

Parallel to market loans, states should be "on-lent" at the same maturity as collections and at rates which differ only by a reasonable commission charge, says the appraisal. This issue will be taken up by the National Development Council when it meets at the end of the month.

States want the interest rate they pay on loans from the small savings corpus lowered and say that other sources of funds are cheaper.