Pranab to discuss burden shift in Wednesday meet; Planning Commission agrees with rationale, but finds no easy path ahead.
In the coming budget proposals for 2012-13, also the first year of the next five-year plan (2012-17), finance minister Pranab Mukherjee is likely to outline a schedule seeking increased sharing by state governments of the social sector expenditure burden.
The minister is slated to hold pre-budget consultations with state finance ministers and representatives of the Union Territories on Wednesday.
A senior ministry official told Business Standard that besides the consultations on implementing the Goods and Services Tax, Mukherjee was likely to present the Centre’s tough fiscal situation before the states and explain the urgency for them to be prepared to take on more social sector spending.
Pronab Sen, principal advisor to the planning commission, said almost all states were in a much better fiscal position than the Centre. West Bengal, Kerala and Tamil Nadu were among the few still facing fiscal stress, he said.
Spending on health, food security and education in the 12th plan is likely to touch 4-4.5 per cent of the combined gross domestic product of Centre and states. The big issue in the 12th plan is how the responsibility of spending in these areas would be divided between Centre and states. The planning commission is working on the issue.
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“There is no ideal way of doing it. It depends on the resource position,” said Sen, and added, “If you go strictly constitutional, these are all areas of the states. But you can’t tell them to bear the whole burden.”
Earlier, when the states were having very high debt problems and interest burden, the Ccentre had to take the responsibility, he said. “But after the clean-up of state finances, particularly their indebtedness, our estimate is that by the time we end the 12th plan, the states will have more resources than the Centre. So, they will have to progressively take up a larger share of these programmes. That’s what it looks like.”
Till the time the next Finance Commission comes up, said Sen, states which were fiscally relatively weak would have a harder time meeting these responsibilities. “When I am saying the states will have a higher resource position than the Centre, I am talking about the collective position. But, there are lots of states which are below the average. Those states will have a problem. It is very difficult to address from the planning commission point of view,” said Sen.
He explained that it was difficult to discriminate between states on the basis of the fiscal position. “The way we do allocation is on the basis of requirement of the resources for the purpose. So, you may have a state which has a relatively high literacy rate and may be fiscally stressed; that state may not get funds. The planning commission’s job is to address developmental issues. Fiscal issues are handled by the Finance Commission.”
He said the next Finance Commission was likely to take care of this fiscal discrepancy. “By and large, however, this is the direction in which, we are moving,” he added.