The Hindu Business Line : 'Allow States direct market access to loans'

Dr. C. Rangarajan, Chairman, Economy Advisory Council to the Prime Minister (right), and Dr Y.V. Reddy, Governor, RBI, at the State Finance Secretaries conference in Mumbai on Friday. — Shashi Ashiwal

Mumbai , April 8

STATES should be allowed to access the market directly for meeting their borrowing requirements. The overall limit to their annual borrowings should be supervised by an independent body, Dr Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister said today.

Addressing the 16th bi-annual conference of the State Finance Secretaries here today, Dr Rangarajan said States should decide their annual borrowing programme within the framework of their respective fiscal responsibility legislations and that an independent body like a Loan Council could supervise the overall limit to the borrowings from all sources for each State.

Highlighting the recommendations of the Twelfth Finance Commission which he chaired, he emphasised that restructured public finance would result in an increase in aggregate saving rate as well as in aggregate investment so that growth is stabilised at above 7 per cent.

He pointed out that the Commission had also laid emphasis on strengthening the local bodies. He noted that the scheme of debt relief, which was in two parts, would be available only if States enacted appropriate legislations, to bring down the revenue deficit to zero by 2008-09 and commit to reducing the fiscal deficit in a phased manner.

With the debt relief recommended, it should be possible for States to pursue their developmental goals with fiscal prudence. The condition imposed also mitigated the moral hazard problem.

In his presidential remarks, Dr Y.V. Reddy, Governor, Reserve Bank of India, stated that while each individual agency would initiate action to implement the recommendations the Reserve Bank would participate in the modalities for smooth transition for the market borrowing programme of the States, with State Governments and the Government of India.

The Governor announced that the Reserve Bank has decided to set up an Advisory Committee on Ways and Means Advances to State Governments to revisit the ways and means advances for States.

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