The Hindu Business Line : Incremental borrowing by States worries Plan Panel

THE Planning Commission has drawn attention to the disturbing level of incremental borrowing, which is emerging as a major concern regarding States' finances in general and Plan financing in particular.

"Inadequate non-borrowed resources of States vis-à-vis their desire to have a higher Plan size in successive years has generated a vicious cycle of growing deficits on both the non-Plan revenues and capital accounts, necessitating a higher level of borrowing to bridge the gap and finance the Plan outlay," the Plan panel said in its Annual Report.

Restricting the overall level of incremental borrowings is, therefore, considered inevitable in view of the existing debt burden of States, it said adding that in a move towards this direction, components of States' own borrowings for Plan financing have been restricted to the ceiling of borrowings committed by State Governments in their memorandum of understanding with the Ministry of Finance for medium-term fiscal reforms programmes.

According to the report, the borrowings of States estimated in the annual Plan for 2004-05 have escalated over the approved Plan for 2003-04 mainly on account of higher loans from net small savings collections. Higher net collections of small savings and completion of the debt swap scheme under which States were to utilise a portion of net small savings collections for repayment of outstanding Central loans carrying over 13 per cent interest rates, are responsible for the increase. During 2004-05, aggregate borrowings of States from own resources were Rs 80,358.76 crore against Rs 74,623.31 crore a year before.

Development expenditure of States, it said, has been displaying an uptrend. Approved outlay of all States and Union Territories increased by about 21 per cent in 2005-06 over the outlays for 2004-05. Against an agreed outlay of Rs 1,24,112.22 crore for 2004-05, it has gone up to Rs 1,42,935.54 crore for the current fiscal. A major reason for the increase in the outlays is additional allocation under the National Common Minimum Programme (NCMP), which contributed in Central assistance to States going up by 9.80 per cent in 2004-05.

Central assistance to States in 2004-05 was Rs 65,511.99 crore against Rs 59,662.70 crore the previous year. Additional allocations under NCMP for critical social sectors such as primary education, nutrition and social security gave a distinct signal to State governments to focus on such areas in their Plan outlay, the report said.

However, state-owned public enterprises remain a drag on Plan resources of States. The estimated contribution of (-) Rs 2,251 crore for annual Plan 2004-05 however indicated improvement of Rs 1,803 crore over the approved estimates for 2003-04 due to accounting adjustments.

The fact that several States have taken up serious steps for reform, privatisation or winding of chronically-sick enterprises is a move in the positive side, the report said.

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