The Reserve Bank of India has constituted a working group of state finance secretaries to explore the scope of reducing the interest burden of states, including a study of the viability of debt prepayment and recourse to floating rate debt instruments. The decision was taken at the conference of state finance secretaries held in the RBI on April 29.
The conference was attended by state finance secretaries, officials of the central government and the Planning Com-mission. Mem- ber, Planning Commission, Montek Singh Ahluwalia was also present in the conference.
A decision was also taken to constitute a task force to analyse and report on the extent of manoeuvrability available in budget making at the state level and to study the scope for increasing budget flexibility. According to a statement issued by the RBI, the central bank will also study the issue of a larger number of state governments tapping the market through the auction for their state borrowing programmes within the present option of 5 to 35 per cent and the possibility of enhancing the limit for such access from 35 per cent to 50 per cent. The RBI will also study the changing nature of contingent liabilities, weights to be attached to such liabilties and administration of guarantee fund.
The central bank is also to make a technical analysis of multi-dimensional aspects of the fiscal deficit in relation to the state domestic product and the debt burden of the states.
The state finance secretaries also requested the RBI to convene a meeting of state finance secretaries and credit rating agencies at which the latter would make a presentation of the methodology of rating state government guaranteed bonds.
It has also been decided to constitute a set of core respondents among state finance secretaries to help the advisory group on fiscal transparency under the chairmanship of Montek Singh Ahluwalia to finalise views existing and desirable levels of fiscal transparency at the state level.
