The mid year review of the finance ministry has effectively questioned the possibility of touching an 8 per cent growth rate of GDP based on the Tenth five year Plan projections.
This means there would now be a big question mark over the GBS amount for Rs 1,34,000 crore asked for by the Planning Commission for 2003-04.
The review says the government has to re-look at the gross budgetary support for the annual plans as made out by the Planning Commission.
According to the document, the increase in plan size has actually led to fiscal problems for the state governments over the years.
This puts a question mark on the growth rate of the economy as projected in the tenth plan, has it has asked for a substantially hiked allocation for plan expenditure every year from 2002-03 to 2006-07.
The criticism comes at a time when the states burdened by unserviceable debt loads have approached the Centre for bail out.
The central finances would be hit to a considerable extent by the package for the next couple iof years.
Besides with banks unwilling to swap the high interest bearing debts of the states, the Centre may have to take an additional hit. Talks are continuing on this issue.
According to the plan mechanism, the Centre gives an annual GBS to the Planning Commission which is the largest component of the public sector outlay as proposed in the five year plan.
The total GBS is split into the sum required for the annual plans of the central ministries and the other is for meeting the core plan of the states.
This sum is given to the state governments in the form of 70 per cent loans and 30 per cent grant. The current interest rates on such loans are about 11.5 per cent.
But the mid year review authored by the chief economic adviser Ashok Lahiri has said a plan expenditure must not be hiked without increasing the ability of the state governments to repay the loan.
It says
