3 more states in fiscal responsibility fold

 Fiscal reforms under this legislation have been of critical importance in recent years in terms of adoption of fiscal prudence and discipline in state budgets.

 Karnataka was the first state to sign the Bill which was later notified as the Fiscal Responsibility Act in the Karnataka Gazette in August 2002.

 As per the RBI report on state finances for the year 2003-03, the state level initiatives on the receipt side have measures aiming at enhancement of revenue receipts through revision of tax rates, broadening of tax base and improved tax compliance. The institutional reforms proposed aims basically on fiscal stability and sustainability.

 While each state has the bill tailor-made to its own requirement, the broad framework of the legislation aims at eliminating fiscal deficit, prudential debt management, greater transparency in fiscal operations and conducting of the fiscal policy in a medium term framework.

 In a step towards fiscal prudence, all states have participated in the debt swap programme proposed by the Centre in order to bring down the overall weighted average cost of borrowings. The three tranches already done have covered the loans with an average interest rate of over 13.5 per cent which were executed in mid 70s when liquidity was tight.

 In the current fiscal, 20 per cent of the net small savings loans payable to the states from September was used to prepay past debt. The percentage of small savings used to swap will increase to 30 per cent in 2003-04 followed by 40 per cent in 2004-05.

 An RBI study has suggested that the number of states using the ways and means advances (WMA) account to tide over day to day needs has been growing rapidly. Gujarat, Kerala, Tamil Nadu, Maharashtra, Madhya Pradesh and West Bengal had resorted to the WMA for more than 200 days last year.

 The report highlighted the fact that while the states have been failing to increase their resources, their expenditure commitments keep shooting up and this even exceed the budgeted borrowings of the states.