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Shore up State finances, says Assocham

Our Bureau

NEW DELHI, May 27

THE Associated Chambers of Commerce and Industry of India (Assocham) has expressed concern over the deterioration in State finances and called for immediate measures to shore up finances of the State Governments.

A study on the State Finances, commissioned by the Chamber, noted that doubling of borrowings by States and the huge shortfall in the deployment of States' own funds right through the post-reform period has assumed ``alarming proportions''.

The Chamber study highlighted that at constant (1993-94) prices, total borrowings of the States have risen from Rs 90,643 crore to Rs 2,15,334 crore between 1992-97 and 1997-2001.

``If immediate measures to shore up finances were not undertaken, many States would be forced to declare financial emergency from 2002 onwards'', the Chamber has said.

According to the study, the deterioration in State finances is the outcome of the relatively high growth in non-Plan revenue expenditure as compared to the revenue receipts and the declining and even negative contribution of the State PSUs, particularly power and transport.

Assocham has also expressed concern at the near stagnation in the States' tax-GDP ratio which approximated to 5.4 per cent throughout the 1990s.

``While borrowings increased sharply, bulk of the borrowed funds is being diverted to bridge the revenue deficit, leaving little for core sector investment. This has resulted in a situation where the revenue deficit has risen to 60 per cent of the gross fiscal deficit in 1999-2000 compared to 28 per cent in 1990-91. Capital expenditure in relation to total expenditure has dwindled sharply, resulting in declining outlays for the social sectors'', the Chamber has said.