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February 20, 1999


States seek cut in administered prices of essentials

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The Bharatiya Janata Party government has decided to phase out subsidies and agreed in principle to increase user charges for electricity and water, in spite of a demand from almost all state governments to roll back prices of essential commodities.

Deputy Chairman of Planning Commission K C Pant admitted that almost all state governments at the NDC meeting yesterday had pressed for a reduction in administered prices of essential commodities.

Pant said the NDC meeting decided to appoint two sub-committees comprising chief ministers and central ministers. One of the committees will go into the question of methodology for the estimation of the incidence of poverty which decided the level of Central assistance to the states.

There was no clear agreement on a new formula proposed by the Planning Commission for this purpose, which gives a 50 per cent weightage each to the estimates committee and the taskforce.

The second committee would go into a medium-term strategy to look into the difficulties of finances of the state governments, which may have been accentuated as a result of the Fifth Pay Commission recommendations and other problems.

Pant said a massive effort is required on the part of state and Central governments to reach a seven per cent growth rate during the remaining three years of the plan.

Pant said the NDC approved the Ninth Plan draft and hiked the ceilings on ways and means advances of the cash strapped states, as a short-term bail-out measure to deal with the fiscal crisis faced by them.

The limits on ways and means advances are fixed as a multiple of cash balances maintained with the RBI and vary across the states.

They came into effect in 1999-2000 and have been advanced to March 1 instead of April. This involves an increase of between 40 per cent and 60 per cent, depending on the severity of the fiscal situation.

The RBI has been asked to accommodate all the states facing fiscal crisis.

The standing committee on finance had submitted its recommendations for a constitutional amendment, based on the suggestions of the 10th Finance Commission. The government proposes to get the amendment approved in the coming Budget session, Pant said.

Pant said one of the sub-committees will work out the mechanism for raising resources to help the states overcome difficulties faced by them due to implementation of the Fifth Pay Commission recommendations. The committee has been asked to meet within a fortnight.

The NDC meeting was convened to approve the Ninth Plan (1997-2002). The plan finally got off the block two years behind schedule. The Centre has given a detailed note on the reasons for the price hike of food grains and other essential commodities justifying it on grounds of the mounting subsidy burden.

Envisaging a public outlay of Rs 85.92 billion, the plan targets an overall 6.5 per cent of GDP growth. Sources said Finance Minister Yashwant Sinha yesterday rejected the plea of chief ministers for an immediate relief through a Rs 100 billion loan.

Prime Minister Atal Bihari Vajpayee told chief ministers that the RBI would be flexible in providing over draft to states till the financial package is worked out for the next financial year.

The proposed package will be worked out only after the Union Budget is presented on February 27.

Which state government does not have a overdraft, Pant asked.

Pant said he did not think that all subsides could be done away with in a poor country. What was required was phasing out of hidden and non-merit subsidies. He said lack of focussed subsidies hit the poor themselves.

The deputy chairman said state governments themselves had understood the need for increasing power and water tariffs in view of the huge losses made by state electricity boards. If they do not do so then the financial conditions of the state would worsen. He said some states have set up regulatory authorities in this context.

Pant said his endeavour was to present a correct picture of the finances of both the Centre and states. He said this in reference to the fact that in spite of the NDC's recommendations, two states had presented tax-free Budgets.

The report of the NDC committee on power, headed by former chief minister Sharad Pawar, was placed before the NDC after some delay for adoption and implementation.

He said the Centre has already taken a number of steps that have been recommended by the committee. Several states have also begun the process of implementation of these recommendations.

He said the states should implement the recommendations as early as possible.

The issue of criterion for allocation of funds under rural poverty alleviation programme has arisen because of the change in methodology of poverty estimation adopted by the Planning Commission recently. The proposed shift has led to a re-ordering of allocations between states.

As a result, the gainers and losers from the proposed shift are on two sides of the fence. The sub-committee of the NDC will look into all these issues.

In the new formula of the Planning Commission, weighted average shares of the states and Union Territories have been calculated giving equal weightage to the share of taskforce estimates for 1987-88 and the expert group estimates for 1993-94.

Some states have expressed reservations on the adjusted shares computed in the Planning Commission and have strongly objected to their adoption for apportionment of funds under various rural poverty alleviation programmes in the Ninth Plan.

Some of the states have advocated maintenance of status quo in the allocation of funds based on the taskforce estimates, while other states are in favour of adopting expert group formula.

About the talk on widening the tax base by including agriculture, Pant said he was experienced enough not to give his mind.

Pant said another item on the agenda was the issue of transfer of centrally sponsored schemes. This is an area where there is considerable divergence of opinion not only among states, but also between states, on the one hand, and central ministries, on the other.

These differences pertain not only to the selection of the schemes to be transferred, but also to the modalities of transfer. He said the NDC members were of the view that the prime minister should appoint a committee to go into the matter.

Asked about subsidies, he said, ''Everyone (all states) wants lower prices.''

Pant said there was no immediate Balance of Payments problem but it is imperative to increase exports.


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