UP lays down tough fiscal norms

Govt plans to reduce fiscal deficit to 3% of its estimated GSDP by March 31, 2009

The Uttar Pradesh Fiscal Responsibility and Budget Management Act has set March 31, 2009, as the deadline for reducing the states' revenue deficit to zero.

The state will also attempt to reduce its fiscal deficit to 3 per cent of its estimated gross state domestic product (GSDP) in the same period. Moreover, the Act prohibits the state from giving guarantees for any sum that is higher than that stipulated under present laws.

It has also set March 31, 2018, as the deadline by which the total liabilities of the state would not be allowed to exceed 25 per cent of the estimated GSDP.

The target can only be relaxed if there is a natural calamity or other demands on the state exchequer, but in such cases the legislature will have to be taken into confidence.

The state's Principal Secretary (Finance) Rita Sharma told Business Standard that currently the fiscal deficit is 4.4 per cent of the GSDP. This has to be brought below 3 per cent in the next four years. Similarly, the state's total public debt stands at 49.1 per cent of the GSDP and is to be brought below 25 per cent in the next 14 years.

The Act not only seeks to discipline the state's fiscal, but also goes far beyond by laying down certain far-reaching principles governing economic policies and binding all the successive administrations to it.

It also envisages the presentation of a medium term financial restructuring policy each year along with the Budget.

The Act expects the government to adhere to certain fiscal principles like maintaining debt at prudent levels, take policy decisions with due regard for future financial implications, ensure that borrowings are used on development activities so that these become self-sustaining and lead to creation or augmentation of capital assets.

It also asks the government to maintain a reasonable degree of stability and predictability as far as the level of the taxes are concerned.

The Act also expects the government to "maintain the integrity of the tax system by minimising special incentives, concessions and exemptions".

The guidelines also ask the government to pursue tax policies with due regard to economic efficiency and compliance and non-tax revenue policies with due regard to cost recovery. It also exhorts the government to build up a revenue a surplus for use in capital formation and productive expenditure.

It also ordains that sufficient information should be disclosed to the public so that the conduct of the fiscal policy and the state of finances is scrutinised.

As in the case of companies, the government too will have to disclose in the Budget any significant changes in the accounting standards, policies and practices affecting or likely to affect the computation of prescribed fiscal indicators.

The ministers concerned have also been entrusted with the task of reviewing the trend of revenue and expenditure in relation to the Budget targets and reporting it to the legislature. The report will have to specify the quantum of deviation from the targets, the reasons thereof, as well as remedial measures.