States in surplus territory

ECONOMIC SURVEY 2007-08

STATE FINANCES: States have marched ahead of central government to become revenue surplus in 2007-08.

States have marched ahead of the central government to become revenue surplus in 2007-08. "States on a consolidated basis are expected to have a revenue surplus of 0.3 per cent of GDP in 2007-08," according to the Economic Survey for 2007-08. Strong incentive-based fiscal transfers has played an important role in this success, it pointed out.

"The fiscal situation of the states has shown considerable improvement, which in fact is even better relative to the performance of the central government, post-Fiscal Responsibility and Budget Management Act (FRBM)," it summed up.

As a proportion of GDP, the fiscal deficits of the states are estimated to be 2.3 per cent in 2007-08. However, they can do even better, it added.

The enactment of fiscal responsibility legislation by 26 states has moved the rule-based programme of fiscal reforms further ahead. Sikkim and West Bengal are the two states yet to enact FRBM Acts.

The successful introduction of VAT by 30 states and Union Territories and the Twelfth Finance Commission's incentive to enact state-level FRBM legislation appear to have deepened state-level fiscal reforms and put them on the path towards fiscal sustainability.

"Debt consolidation and waiver have facilitated states to achieve targets of elimination of revenue deficit and containing fiscal deficit to gross state domestic product (GSDP) ratio at 3 per cent, well ahead of 2008-09," the survey said.