Search the Internet          Tips  Sites: Finance, Investment

States for consolidation, market loans dip 31%

BS Banking Bureau in Mumbai

State governments are aiming at fiscal consolidation through institutional reforms, which will go a long way in improving their finances.

According to the estimates given in the Reserve Bank of India Annual Report 2001-02, the gross and net market borrowings allocated to the states this fiscal (2002-03) is lower by 27 and 31 per cent, respectively over the figures last year.

The central bank has tentatively placed the gross market borrowings at Rs 13,814 crore (Rs 138.14 billion) and net market borrowings at Rs 12,024 crore (Rs 120.24 billion).

States have so far raised Rs 5,243 crore (Rs 52.43 billion) in the first five months of the fiscal, constituting 38 per cent of the gross allocation for the year.

The reduction in the size of the borrowing programme is seen as an improvement in state finances last year, when states borrowed 43 per cent more at the gross level than in 2000-01, and over 36 per cent at the net level.

The gross and net market loans allocated for all states during fiscal 2002, amounted to Rs 19,030 crore (Rs 190.30 billion) and Rs 17,583 crore (Rs 175.83 billion), respectively. The RBI has revised its estimates for fiscal 2002, which indicate deterioration in the fiscal position of states.

The gross fiscal deficit of states was 20.3 per cent higher over 2000-01 at Rs 1,04,557 crore (Rs 1,045.57 billion), representing 4.5 per cent of the gross domestic product.

Several states are gearing up to improve their finances. Karnataka and Maharashtra have already expressed their intention to introduce the fiscal responsibility legislation, the RBI says.

Maharashtra proposes to set up an independent fiscal advisory board to oversee the implementation of the legislation. Tamil Nadu has decided to constitute a tax reforms and revenue augmentation commission, while a similar commission constituted by Karnataka has already submitted its report to state government.

However, the continuous imbalance between revenue receipts and expenditure of states overshadows the modest efforts towards fiscal consolidation.

The revenue deficit in 2001-02 was 15.7 per cent higher than in the last year. Several states have taken up a series of initiatives aimed at rectifying this problem. In order to enhance revenue receipts, states are widening the tax base, going for better tax compliance, preparing for the introduction of value added tax and rationalising the user charges in respect of utilities like water, power and transport.

At the same time, they are also seeking to contain expenditure growth through measures such as restricting recruitment, containing administrative expenditure, redeployment of manpower and emphasis on prioritisation of resource allocation.

With interest rates moving south, the cost of state borrowings has declined since 1996-97.

Since the beginning of the fiscal 2002, 26 states raised Rs 3,974 crore (Rs 39.74 billion) at an interest rate of 7.8 per cent through on-tap issuances.

Six states mobilised Rs 1,269 crore (Rs 12.69 billion) through auction at interest rates ranging between 7.8 per cent and 8 per cent.

These rates are lower compared with the rates of 10.5-12 per cent prevailing in 2000-01. States were also able to raise cheaper money last year (2001-02) when the rates hovered around 7.8-10.5 per cent.

Powered by

ALSO READ:
RBI Annual Report 2001-02
More Money Headlines