Worried by the conflicting advices to the state governments on how to put their fiscal situation in order, the Union finance ministry has decided to begin a major dialogue with the states from this month.
But what may raise opposition in many states is that the ministry is roping in the World Bank as an advisor.
The ministry will hold a series of meetings with the different state governments from this month to work out policies to ensure that they come out of their fiscal mess.
The new initiatives of the ministry, which are meant to review the income and expenditure condition of each state regularly, are almost an indictment of several organs of the central government itself, including the Finance Commission and especially, the Planning Commission.
Senior officials of the finance ministry said that over the past few years, too many agencies had advised the states on fiscal correction. As a result, the states have actually followed conflicting suggestions which has pushed the aggregate fiscal deficit near the ten per cent mark of the GDP.
While the finance ministry officials conceded that the Centre had hardly any better record of managing its own finances, they clarified that the involvement of the multilateral institutions should not be read as a sign of an admission that the government had run out of ideas to solve the mess.
The officials said to ensure a congruence in the models being suggested, the ministry would involve the World Bank and other multilateral agencies along with National Institute of Public Finance and Policy to provide expert advice.
As a first step, the World Bank will hold a three-day seminar later this month with the state governments.
However, possibly because of the sensitive nature of the issue, the World Bank has been extremely tight-lipped about its involvement in the programme. According to an official estimate, about 50 per cent of the current loans and grants to many state governments come from these institutions.
Currently, along with their aid packages, the Bank and other agencies like ADB often insist on conditions in one or more sectors, like power and roads.
Interestingly, the president of the World Bank James D Wolfenson will also be in the country from tomorrow and is expected to visit several states to review the Bank
