The Hindu : `Solution to fiscal problems by Sept.'

Online edition of India's National Newspaper
Saturday, Aug 10, 2002

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`Solution to fiscal problems by Sept.'

By Our Special Correspondent

NEW DELHI AUG. 9. The newly-formed Empowered Committee on State Finances, headed by the Union Finance Minister, Jaswant Singh, held its first meeting today and discussed the problems being faced by the States on issues such as the impact of the Fifth Pay Commission award, the mounting Central loan repayment burden on the States and measures to improve tax collections. It was resolved that solutions would be worked out by September this year.

The decision to form the committee was taken at a meeting here on June 12 convened by the then Finance Minister, Yashwant Sinha, with the mandate to look into major fiscal problems being faced by the States. Apart from the impact of the Pay panel award and repayment burden, the States had also complained about the shortfall in devolution of Central taxes to them and the issue of reviewing the Reserve Bank's overdraft facility to the States.

After the meeting, the West Bengal Finance Minister, Asim Dasgupta, told presspersons that the committee wanted to resolve the issues by September. "We discussed three things — the widespread effect of the Central Pay Commission recommendations on State finances and what States can do about it; the debt burden and how we can lessen the problem and, finally, how to improve tax collections.''

Dr. Dasgupta said the committee comprising the Finance Ministers of Assam, Jammu and Kashmir, Gujarat, Madhya Pradesh, Tamil Nadu and West Bengal — apart from the Union Finance Minister — had progressed on how to improve the State finances.

It was also decided that Mr. Singh would meet all the State Finance Ministers towards the end of the month to be followed by a meeting of Prime Minister with all the Chief Ministers next month.

On the issue of retiring high cost debt of the States, he said the issue of debt-swap was on the agenda but the committee was yet to arrive at a resolution. "Once the empowered committee resolves these issues, we will have an interaction with the Reserve Bank. We will finalise the package by September.''

Dr. Dasgupta, who is also the convener of the committee on value-added tax, said, "this was an area, where we renewed our resolve to implement nationwide VAT by April 2003.''

The committee on VAT, at its meeting today, discussed ways of compensating the States which might suffer revenue loss while implementing the new tax system and replacing the Central sales tax regime.

"The formula for compensating States for loss of revenue will be evolved within a month's time,'' he said. So far, 22 States have submitted the VAT legislations to the Centre. The Madhya Pradesh Finance Minister, Ajay Mushran, said his State Assembly had already passed the VAT Bill on August 7.

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