Planned problem

It is only three months into the fiscal year and almost every state is in the midst of a cash crunch. The reason is not the generic problem of state finances but the modalities of deciding on central plan assistance to state plans as well as for the centrally sponsored schemes formulated and financed by individual ministries.

The fiscal calendar being what it has become, it is unlikely that the states' problems will be resolved in the next three months. In other words, half the year is over without any new work being taken up for execution.

The central government will present the Union budget on July 8. It is here that the finance ministry will reveal its gross budgetary support to the Plan. The size of gross budgetary support will give the Planning Commission the total amount of resources available to it for financing the central and state plans.

The Planning Commission will then work out its Plan allocations and indicate to each state what financing it will be able to provide for the state's plan.

The state government will then formulate its plans "" indeed, in the absence of any indication from the Planning Commission most states are presenting their budgets with inflated plan sizes in order to play them back to the Commission.

The Commission will at some point invite the state governments for Plan discussions and for finalising the state plans. In many cases the finalisation of the Plan takes more than one meeting, so even more time will pass.

Since there are 29 states to be dealt with after Parliament approves the Budget, it is almost certain that the ritual of plan finalisation will be completed only in December. And the money has to be spent by March.

If it is not, the Commission will deduct the unspent balance from its Central Plan assistance. All this while, that is between now and December, the state governments will face a cash crunch because their normal entitlements by way of resources are not flowing to them in accordance. They cannot even take loans to tide over the situation.

This quixotic planning system should be changed. Pending reform of the Planning Commission and the Plan process, one thing can be done immediately.

The Planning Commission should not take it upon itself to determine the size of the Plan for every state. It is better that it does so only for the special category states. For all others, it should focus only on the central assistance that it is willing to give.