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Call for monitoring funds usage by states

BS Banking Bureau in Mumbai

The Reserve Bank of India has called for close monitoring of the end use of funds made available to state-level enterprises.

In its annual report, the central bank pointed out that funds raised by public enterprises for commercial use are being diverted to support state budget operations.

In effect, market borrowings have become a back-door means for state enterprises to meet budgetary expenses.

The central bank has raised alarm on the diversion of funds as this distorts the fiscal and financial systems of the economy and erodes the fiscal transparency.

Pointing to the poor financial state of public sector enterprises, the RBI has called for their restructuring. It noted that if these enterprises become profitable they could be a major source of resources and support state finances, instead of being an albatross.

Today, investments in public sector enterprises and statutory corporate entities yield poor returns, the apex bank noted. It outlined the need to address user charges and cost recoveries in the context of fiscal correction and achievement of a reasonable degree of flexibility in public finances.

The RBI pointed out a marked shortfall in revenue receipts for central and state finances relative to the budget estimates for 2001-02. The combined aggregate expenditure was marginally lower than budget estimates - revenue expenditure was 0.5 per cent less and capital expenditure was lower by 3.3 per cent.

Combined revenue receipts fell short of the budgetary estimates by 6.4 per cent. This resulted in a revised estimate of 9.9 per cent in gross fiscal deficit for 2001-02.

The RBI hopes to decrease the fiscal deficit to 8.7 per cent of GDP in this fiscal. The reduction is envisaged through a relatively higher growth in revenue receipts (15.2 per cent) than in aggregate expenditure (8.9 per cent).

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RBI Annual Report 2001-02
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