Wednesday, Aug 13, 2003
Wednesday, Aug 13, 2003 |
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Kerala
By Our Special Correspondent
The Bill proposes making it mandatory for the Government to bring down the revenue deficit in stages to remove it altogether by March 31, 2007. It also envisages fixing a ceiling on fiscal deficit at the level of 1.5 per cent of the Gross State Domestic Product (SDP). This too has to be achieved by March 31, 2007. The Bill further stipulates that the Government should place before the Assembly a medium-term fiscal policy statement along with each year's budget. This statement should spell out the strategy for bringing around the financial management of the Government to a progressively healthier condition over a three-year period. The CPI(M) MLAs, Thomas Isaac and T. K. Balan, and the CPI MLA, Binoy Viswam, who made dissenting notes in the Subject Committee, said that stipulating fiscal deficit as a proportion of the SDP was unsuited in the Kerala context, given the role of foreign remittances in "over-stating'' the SDP. They also argued that it was "arbitrary'' to fix the ceiling on fiscal deficit at the level of 1.5 per cent of the SDP. So long as the borrowings were used for creating assets and not diverted for covering revenue expenses, it should not be considered an unhealthy practice. ``The obsession with fiscal deficit is an ideological position that is going to disrupt the financing of the 10th Plan and adversely affect the economic growth in the State,'' they said. The Bill also proposes that the revenue surplus generated through tighter fiscal management over the coming years be devoted entirely for returning public debt. The three dissenters said this was an unwarranted clause. Dr. Isaac wondered how the State would achieve its ambitious 10th Plan targets if it imposed on itself such drastic restrictions on availing loans. More than 80 per cent of the 10th Plan was actually proposed to be financed through borrowings. The self-imposed restrictions would leave the Government with little flexibility in managing the economy, he added. He said `revenue deficit', which meant using borrowings to finance revenue expenses, should not be viewed on the same plane as `fiscal deficit', which constituted funds utilised for capital investment also. Sustainability of the debt of a State depended on the capacity of the Government to service the debt. Spurring growth through investments in key sectors could lift the capacity of the Government to repay its loans. ``While there are sophisticated models for assessing the sustainability of debt/deficit in relation to SDP, public finance experts suggest that a prudent limit for the gross fiscal deficit would be three per cent of the SDP. This has now become accepted internationally as a standard,'' Dr. Isaac said. The Congress MLA, K. C. Joseph, said such a Bill had become long overdue considering the recklessness with which successive Governments had managed the finances of the State. "The budgets themselves have lost their sanctity in the recent years, with the expenses invariably shooting far beyond the estimates,'' he said.
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