The Centre is yet to receive any proposal from state governments on their proposed debt-swap plan to reduce the burden of high interest borrowings.
The representatives of various states, who had met Union finance minister Jaswant Singh with a four-point agenda in early August to resolve their fiscal mess, were supposed to submit a proposal regarding the debt swap to the Centre. But so far, there has been no communication from them, though the committee on state finances is supposed to finalise its decision by the end of September. The committee was supposed to meet by the third week of August. Another meeting with Prime Minister Atal Bihari Vajpayee in the first week of September was also planned.
It was decided that the representatives of the Centre, state governments and the Reserve Bank of India (RBI) would work out the modalities of the debt swap, once the proposal of the states was received.
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But RBI sources said they had not been intimated about any meeting on the issue so far. The role of the RBI in sorting out the issue is critical because it is the banker to states and any debt swap has to be worked out through the apex bank.
It is expected that the states will be asked to put in place a series of measures to reduce their revenue expenditure. However, government officials said it would be naive to think a solution to the issue could be found so soon.
The problem for the states stems from the fact that they have little fiscal space to cut expenditure. In 2000-01, interest payments of states, on average, constituted over 25 per cent of their revenue expenditure. The other major expenditure was wages. There is, therefore, not much room for a cut in expenditure.
An earlier proposal made by the states to club their outstanding debt into a 7 or 8 per cent interest-rate-based paper has not found favour with the RBI.
The total outstanding debt of the states is over Rs 200,000 crore.