Improve tax-GDP ratio, states told

Explore alternative revenue sources: C Rangarajan.

States should look at rationalising property taxes and stamp duties to raise additional resources and improve their tax-GDP ratio, C Rangarajan, chairman of the prime minister's economic advisory council said today.

"Financially-weak states, including West Bengal, Uttar Pradesh, Bihar, Orissa and Jharkhand, should aim at raising tax-GDP ratios and use funds effectively in social sectors," Rangarajan said at a World Bank conference here. More funds should be available for health and education, he added.

Rangarajan said the tax-GDP ratio in these states was much lower than the national average and there was enough scope to raise more revenue. Even though the introduction of value-added tax would add substantially to tax revenue, states needed to explore alternative sources as well, he advised.

Pointing at the uneven spending of these five state governments, the former Reserve Bank of India governor said developmental expenditure, which accelerated growth, was only 50-57 per cent of the total spending.

Per capita expenditure on health was also much lower in these states, he said.

Rangarajan also called for better governance in these states, which required improvement in the functioning of state public-sector enterprises, especially power utilities.

A low tax-GDP ratio was accompanied by high fiscal deficits in all these states except Bihar, which had a lower deficit due to less spending, Rangarajan pointed out.

National Institute of Public Finance and Policy Director M Govinda Rao said the tax-GDP ratio in West Bengal was 4:22 during 1999-2002, while it was 4:24 in Bihar, 4:85 in Jharkhand, 5:16 in Orissa and 5:45 in Uttar Pradesh. The national average that year was 6:54.

Asking the states to improve their fiscal management, World Bank Country Director Michael Carter said they should raise more revenue and make public expenditure more effective.