The Telegraph
Since 1st March, 1999
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States bite bullet at World Bank meet

New Delhi, Oct. 22: The states are beginning to belt up. Teetering on the brink of financial disaster, several state governments are starting to batten down their hatches to clamp down on years of fiscal profligacy that have left their treasuries empty and in a sweat to pay their employees and creditors.

Five states — Orissa, Andhra Pradesh, Punjab, Uttar Pradesh and Tamil Nadu — today made presentations at a World Bank workshop on state-level fiscal reforms to underscore what they were doing to climb out of the financial morass.

Orissa is clearly one of the worst off: salary and pension payments together account for more than 155 per cent of the state’s own revenues and nearly 70 per cent of the state’s total revenues.

Orissa had a salary and pension bill of Rs 4,907.53 crore in 2001-02 against the state’s own revenues of Rs 3,205.08 crore. This means that it isn’t generating enough cash to pay its employees and, if it hadn’t been for the federal cash stream, it would have been deep in the hock.

If you add to this sum the interest that the Orissa government pays out on past credits, the government’s finances are clearly down a chute: salary, pension and interest at Rs 7,742.69 crore account for more than 245 per cent of the state’s own revenues and 110 per cent of its total revenues of Rs 7,047.98 crore, which means that the state has no money left over for anything else.

With a revenue deficit of Rs 3,085.03 crore (7.7 per cent of the gross state domestic product) and outstanding debts of Rs 24,272.24 crore, Orissa is clearly teetering on a precipice which probably explains why chief minister Naveen Patnaik was so keen at the meeting of chief ministers last week to freeze dearness allowance for employees — a proposal that did not find much favour with the others who were wary of taking a politically unwise decision before crucial Assembly elections.

In comparison, Andhra Pradesh is a lot better off with its staff costs as a percentage of revenue expenditure at 48.5 per cent now and projected to go down to 40.6 per cent by 2005-06, which means it still has cash over to splurge on those development projects. Andhra, however, has its share of problems with its fiscal deficit projected at 4.52 per cent of the gross state domestic product, down from 5.31 per cent in 2000-01.

Punjab is also in deep trouble with the rate of growth in what was once one of the fastest-growing states in the country falling to less than 5 per cent against the national average of 6 per cent.

In Punjab’s case, wages, salaries and pensions at Rs 6,102 crore in 2001-02 consumed 86.5 per cent of total revenue receipts. This has precipitated huge government borrowings that ballooned to Rs 27,830 crore in 2000-01.

With a fiscal deficit of Rs 4,959 crore (6.53 per cent of the gross state domestic product), outstanding debts of 42.77 per cent of GSDP and investment of Rs 24,329 crore in state-owned units that earn no return, Punjab is a state with serious fiscal problems.

Just last week, chief minister Amarinder Singh decided that it would not provide free power to farmers — implementing a unpopular decision that all chief ministers had agreed back in 1997. It’s only now when the Punjab state electricity board decided that it could not shoulder the burden anymore that the state government decided to finally bell the cat. This is one instance where reforms were pushed through because of the exigencies of the situation rather than great political will.

Huge wage bills, excessive borrowings and a massive liquidity crunch have created a fiscal crisis in Tamil Nadu and Uttar Pradesh.

All the states have drawn up a game-plan of sorts to deal with the crisis with Andhra coming up with the most exhaustive plans. It has drawn up a VRS scheme and knocked 14,380 employee of the rolls, closed or privatised 17 state owned units and has embarked on the second phase of restructuring for 49 other state-owned units.

Orissa has also taken a stab at tough fiscal reforms by capping government guarantees to 100 per cent of revenue receipts excluding grants-in-aid and making an attempt to trim the civil service by identifying surplus posts and personnel.

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