Delink Plan grants from compulsory central loans

12TH FINANCE COMMISSION REPORT/ PLAN ASSISTANCE

Central loans as part of the Plan assistance unnecessarily increase the fiscal deficit.

The 12th Finance Commission has recommended doing away with the system of a 70:30 ratio between loans and grants for extending Plan assistance to non-special category states and 10:90 for special category states.

Instead, the commission has said the Centre should merely extend Plan grants and leave it to states to decide how much they wish to borrow and from whom. This will not only ensure greater fiscal discipline in states but will also bring down the Centre's fiscal deficit.

"There is indeed no reason why Plan grants to states should be linked to compulsory loans from the Centre. The considerations that go into deciding the grants are, and should be, different from those relating to loans. Since almost the entire Plan expenditure is met by the Centre from borrowed funds, central loans as part of the Plan assistance unnecessarily increase the fiscal deficit," it said.

Based on the needs and development concerns of the states, Rs 142,640 crore has been set aside under grants-in-aid for 2005-10. The grants have been further categorised into 10 segments including calamity relief, heritage conservation and state-specific needs.

Post-devolution non-Plan revenue deficit: Rs 56, 856 crore to cover the non-Plan revenue deficit. During the first year of the award, 15 states including West Bengal, Kerala, Orissa, Punjab and Jammu and Kashmir are recommended for grants amounting to Rs 15,091.86 crore. By the last year of the award period only nine states will get the grant amounting to Rs 9,528.14 crore.

Education and Health: Rs 5,887 crore and Rs 10,172 crore, respectively. Eight states including Assam, Bihar, Jharkand and West Bengal will be given grants for education.

With Uttar Pradesh at Rs 4,454 crore will receive the highest and Rajasthan the least at Rs 100 crore. Similarly, seven states will receive grants under health with Uttar Pradesh receiving the highest at Rs 2,313.38 crore and Uttaranchal to get Rs 50 crore.

Roads and buildings maintenance: Rs 15,000 crore for 2005-10. The amount has been distributed among states on the basis of road length.

Uttar Pradesh with Rs 2,403 crore will be the highest recipient and under this head while lowest of Rs 18.6 crore will be given to Sikkim. Similarly, Rs 5,000 crore has been given to states for maintenance of buildings, which has been distributed among all the states on the basis of plinth area.

Forests and Heritage conservation: An amount of Rs 1,000 crore has been distributed among the states based on their forest wealth.

Rs 625 crore has been earmarked for preservation and protection of historical monuments, archaeological sites, public libraries, museums and archives, and also for improving tourist infrastructure to facilitate visits to these sites.

Others: The commission has also awarded Rs 7,100 crore for state-specific needs, which include drinking water supply to fluoride-affected areas in Andhra Pradesh, development of urban areas and health infrastructure in Assam, technical education and e-governance in Bihar.