The Centre has decided to ask all chief ministers to agree to a proposal to freeze the rates of dearness allowance of state government employees alongwith restrictions on increase in pay as part of a package of measures for fiscal corrections.
The proposals are being mooted at the two-day chief ministers' conference to be held on October 25 - 26 to consider four major issues that the Centre wants to push forward. These include labour and power reforms, fiscal corrections and changes in governance procedures.
According to top level government sources, the Centre feels that it will be impossible to effect any improvement in the fiscal position of the state governments unless all the states move ahead together. Otherwise the popular backlash to any move to restrict the allowances for government servants will be difficult to handle for any state government.
As part of the fiscal corrections programme, the Centre is urging the states to curtail their tendency to award rates of dearness allowance at the same rates as applicable for Central government employees. The mounting salary and pension liabilities is one of the main reasons for states going in for market borrowings which push them further into debt. The current public debt of the states is 23.1 per cent of the GDP.
At the meeting, the Centre will urge all the Chief Ministers to agree to a scale of cutbacks to restore their fiscal health.
This is expected to include a proposal not to increase salary levels of employees for the next ten years. In 2001-02, the salary and pensions bill and interest payments account for 42.8 per cent of the total revenue receipts of the states.
While almost one and a half year has elapsed since the recommendations of the 11th finance commission, the fiscal health of the states has hardly showed any improvement with their fiscal deficit hovering at about 4.70 per cent of the GDP.
The meeting of the chief ministers has been described by officials as the right forum to build a consensus on the issue. The Centre will also be asking for a consensus on the crucial labour and power reforms so as to introduce the electricity bill and the amendments to the Industrial Disputes Act and Contract Labour Act to improve productivity in the two critical sectors.
It will also discuss the possibility of introducing wide ranging changes in the administrative framework including measures to improve sanction for project clearances.
