VAT may come in force from April 1

Rising debt burden, increasing interest payments Raje's biggest challenge

Rajasthan Chief Minister Vasundhara Raje, who is also the finance minister of the state, is presenting her third Budget tomorrow. She is likely to announce the implementation of the value-added tax regime from April 1 in the state, which is passing through a difficult financial phase.

Raje's biggest challenge is to lower the interest payment liability, which now is around Rs 14 crore a day. Economists have already warned the state government of the rising debt burden and increasing interest payments.

The state's financial stress can be seen from the fact that on one hand, its revenue sources are being choked while on the other hand, non-Plan expenditure is increasing. The interest payment liability as a ratio of revenue receipts stands very high at 31 per cent, against the RBI norms of 18 per cent.

"Raje would have do something drastic to curtail the ever increasing debt burden and interest payment. Otherwise, the state would move fast into a debt trap," K K Gaur, an economic professor, warns. The state's debt has already crossed the Rs 66,000 crore mark and is 55 per cent of the state gross domestic product and is more than double the RBI norms of 26 per cent.

Though the chief minister has won laurels for her financial acumen by reducing the revenue deficit in 2003-04 from Rs 3,424 crore to Rs 2,648 crore in revised estimates, the Budget 2005-06 estimated the revenue deficit at Rs 1,513 crore. The chief minister has the task of bringing down the revenue deficit to zero and fiscal deficit to three per cent of the GDP by 2009 as per the Fiscal Responsibility and Budget Management (FRBM) Act.

Bringing fiscal deficit down to three per cent in the next four years is a tough call, as the fiscal deficit is at present five per cent of the state GDP.

This year, the state will also have to pay a sum of around Rs 800 crore as retirement benefits to persons retiring at the age of 60. For the last two years, it was saved from this as the retirement age was raised from 58 to 60, saving it from shelling out Rs 1,600 crore.

VAT awareness camps, organised in parts of the state to educate traders about the tax, has sent signals that the state government finally is going ahead with implementing VAT.