Marketing The State

Earlier, in its 1992-93 annual report, the central bank had suggested setting up a States Funding Corporation which would raise funds at market-related rates of interest and pass them on at fixed rates to the states. But the fiscal profligacy of the states meant that the issue of moving them to the market remained on the backburner. The proposal mooted now will expose the states, even if marginally and in phases, to the rigours of market discipline. It will provide market-driven incentives and disincentives to them to improve their finances.

But the critical question is how many states are in a position to take advantage of the new system given the existing state of their finances. While the quantum of gross market borrowings by the states has gone up from Rs 2,569 crore in 1990-91 to Rs 7,749 crore in 1997-98, only a handful would be adventurous enough to tap the market on their own strength. Of the six states Andhra Pradesh, Bihar, Maharashtra, Uttar Pradesh, West Bengal and Tamil Nadu which account for more than half the total market borrowings, realistically speaking, only Maharashtra would be able to tap the market, with perhaps Gujarat and Punjab too, on the basis of their fundamentals (other than the fisc).

 

If running a revenue surplus is seen as an indicator, then no state (the revenue surplus of special category states is an accounting quirk and hence meaningless) qualifies as a candidate. The reason for this is that none of the prerequisites for giving the states access to the market have been fulfilled. The states need to widen and rationalise their tax base, explore the scope for implementation of the value added tax system and hike user charges in respect of power, transport, and irrigation. In addition to this, they need to go ahead with the expenditure restructuring focus on the issue of public debt and debt servicing (under Articles 292 and 293 ) ahead of the forthcoming budget exercise so as to lend transparency to their operations.