Growth rate is much lower than what was achieved in the two previous financial years.
The tax revenue of 33 states and Union Territories that implemented value-added tax (VAT) has shown an increase of 19 per cent in the nine months ended December 2008, as compared to the corresponding period in 2007. This is the latest period for which data is available on state finances.
However, this growth rate is much lower than what was achieved in the two previous financial years, when it grew in excess of 30 per cent, says the Economic Survey.
The aggregate estimate of state finances is available only for fiscal 2006-07, when the overall economy was growing in excess of 9 per cent. In that year, the survey said the combined fiscal deficit of 28 states was contained at 1.9 per cent of their GDP, well within the target set under the Fiscal Responsibility and Budget Management (FRBM) Act.
“The award of the Twelfth Finance Commission in terms of grants and the incentive scheme of debt consolidation and waiver linked to fiscal consolidation under fiscal rules, revenue buoyancy of the centre and the introduction of state-level VAT proved to be a very buoyant source for states,” the survey said.
Debt consolidation has two components -- consolidation of central loans and debt waiver. So far, central loans of 25 out of 28 states have been consolidated to the extent of Rs 1,13,596 crore, providing aggregate interest relief of around Rs 15,700 crore till March 2009.
Under debt waiver, the total benefit works out to Rs 18,820 crore till March 2009. Thus the combined benefit for the states under the two components works out to around Rs 34,500 crore in the four financial years up to March 2009.
States have to adhere to rules-based fiscal discipline to qualify for relief under debt consolidation. Karnataka was the first state to enact its own FRBM Act, in 2003. At present, 26 of 28 states, barring Sikkim and West Bengal, have enacted an FRBM Act.
On fiscal performance, 13 states have achieved revenue surpluses, with Bihar achieving the highest revenue surplus at 3.6 per cent of Gross State Domestic Product in 2007-08 (revised estimates).
Consolidated revised figures are not available. But budget estimates show a fiscal deficit of 2.3 per cent of states’ GDP in 2007-08. This is well below the target of 3 per cent under the fiscal rules.
But with economic slowdown impacting the states’ revenue collections in 2008-09, the combined fiscal deficit is likely to exceed the budget estimate of 2.1 per cent. The survey is advocating a quick return to FRBM-based fiscal rules to maintain high growth momentum.
