The Hindu Business Line : RBI urges States to augment revenues

THE Reserve Bank of India has called upon States to make efforts to enhance their own revenues — both tax and non-tax to improve budgetary flexibility.

A meaningful fiscal consolidation in State Governments would necessitate rule-based fiscal framework backed by appropriate legislation, as underscored by international experience, and, therefore, it would be useful if the initiatives undertaken by some State Governments are emulated by the rest, RBI has said in its report on `State finances: A study of budgets of 2003-04', released on Monday.

"It is imperative that States augment their tax receipts through better tax administration, improved tax compliance and rationalisation of the tax structure," the RBI report said.

In view of the increasing importance of the services sector in GDP, the enactment and implementation of the proposed constitutional amendment to integrate services into the tax net in a comprehensive manner would facilitate higher revenue flows to the States, the central bank has said.

RBI has emphasised that there is a need for reorientation of levies such as stamp duties and registration fees. These fees and duties need to be made `tax payer-friendly'. Adoption of appropriate user charges for the services provided by the States would also help States augment their resource base.

Towards this end, while State Governments recently have taken some initiatives, these have not translated into any significant rise in their non-tax revenue receipts as yet, RBI has observed.

The restructuring of public sector enterprises has been identified as another critical area for improving the health of State finances.

Over the years, State Governments have built huge assets in the form of public sector undertakings. The States should, therefore, bestow focussed attention on the asset side where they have made large investments, RBI has said.

Highlighting the need for transparency, in the context of the fiscal challenges faced by the States, RBI said, they would need to enhance transparency in reporting and provide comprehensive information on fiscal developments including data on subsidies and guarantees.

"In addition public dissemination of fiscal data on more frequent basis would be desirable," said RBI.

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