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CMs demand incentives, fiscal revamp package, more share in taxes

The Union Budget 2001-02 should offer fresh incentives for small savings and a fiscal restructuring package for the states to help them tide over the resource crunch, according to state governments.

In separate interviews on the budget, chief ministers and finance ministers of various states also favoured a greater share for the states in the tax revenue collected by the Centre.

Most of them said their financial problems mainly stem from the additional burden imposed on them by the Fifth Pay Commission recommendations for government employees and as such the Centre has the responsibility to help them.

''Almost all the states are facing a severe fiscal crunch, more so in Orissa. I would like the Finance Minister Yashwant Sinha to present a comprehensive fiscal restructuring package for states like Orissa who are in urgent need of central assistance,'' said Orissa Chief Minister Naveen Patnaik.

His counterpart in Himachal Pradesh, Prem Kumar Dhumal, agreed. "The Centre should give financial assistance to states as they have to bear the burden on account of the Pay Commission," he said.

Assam Chief Minister Prafulla Kumar Mahanta said: ''What I would like to see in the Union Budget 2001-02 is a much more state-friendly'' approach, especially for Assam and other special category states of the northeast.

''Our problems could be summed up in one expression: the vicious cycle of backwardness, made more complex by problems of insurgency. In order to make a meaningful dent in this scenario, we have to have a special window of financial assistance from the Centre,'' Mahanta states.

On small savings, Dhumal said that the Centre should consider giving more tax concessions to encourage small savings which the states utilise for development work.

''Small savings should have total exemption from income tax, irrespective of the amount,'' he suggests.

According to Lalchamliana, Mizoram's Minister of State for Finance, ''The state government employees were demoralised after the rate of interest on the general providend fund savings was reduced from 12 per cent to 11 per cent recently.''

Greater incentives are required to reverse the declining trend in savings which have slipped from 26 per cent of the GDP in 1995 to about 22 per cent now, he said.

Agreeing with the suggestion, the Haryana chief minister said that ''incentive-related small savings campaign launched to mobilize public deposits have received a serious setback due to policy changes at central level like frequent reduction in interest rates and discontinuation of instruments like the Kisan Vikas Patra."

"Interest rates have to be fairly higher and the level of non-taxable savings needs to be enhanced from Rs 60,000 to Rs 150,000," the Haryana chief minister added.

Rajasthan Chief Minister Ashok Gehlot said that the Rs 60,000 limit under section 88 of the Income Tax Act was fixed along time ago. It should be raised to Rs 100,000 to motivate people to invest more in small savings.

The proposal, however, does not find favour with Patnaik who states that incentives to promote savings are in place. "What we need is a stronger regulatory framework to protect the interests of small investors who are defrauded by fly-by-night operators," he said.

Haryana also wants a hike in the share of the states in the total central revenues, from 37.5 per cent to at least 40 per cent. The present share is very low compared to 38 to 44 per cent during 1990-95, Dhumal opined.

Gehlot supported this stand: ''We feel that the Union gets the lion's share of tax revenue whereas major developmental tasks and regulatory functions have been assigned to states.''

The capital market also needs to be boosted to channelise household savings, while specific tax incentives can induce fresh investment, the Haryana chief minister suggested.

Stiff opposition

Even before the Centre moves to cut interest on small savings, chief ministers of different states have stiffly opposed any such move saying resources so raised were vital for development purposes.

In fact, they demanded fresh incentives on small savings to step up the savings rate and some even suggested that these savings should have total exemption from income tax irrespective of their amount.

There is widespread speculation that the finance ministry will slash interest on small savings and the opposition comes from the states as part of these accrue to them, making the job of the central government difficult in this regard.

The fears of a cut have been fuelled by recommendations of the Economic Advisory Council which feels the government is doling out huge amounts adding to its astronomical borrowing costs resulting from a huge fiscal deficit.

Many economists feel that there should be no administered savings rate and it should be market determined.

Naveen Patnaik was the only one who felt that incentives to promote savings are in place. What was needed was a strong regulatory framework to protect the interest of small investors who are often cheated by fly-by-night operators.

Favouring a greater share for the states in the Centre's kitty, the leaders demanded a fiscal restructuring package in the budget to help them tide over their resource crunch.

They said their problems chiefly arose from implementation of the recommendations of the Fifth Pay Commission, which was not of their making. It was the therefore, the Centre's responsibility to bail them out.

Dhumal demanded more concessions to encourage small savings which the states use for development work.

UNI

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