The Hindu Business Line : Chidambaram not for relaxing FRBM Act

Select intervention
The Finance Ministry plumps for further consolidating policy and budgetary intervention of the Central and State Governments on pure public goods in addressing the issues of irrigation, flood control, watershed management, public health, primary education, vocational training, social security, basic research and governance functions of the State, leaving the rest to either the public private partnership (PPP) or exclusively to the private sector after setting right policy aberrations and addressing regulatory issues.

New Delhi , Sept. 21

The Finance Ministry has once again expressed itself unequivocally against any relaxation of the goalposts set forth in the Fiscal Responsibility and Budget Management (FRBM) Act to accommodate the wish list of the Planning Commission to provide for greater public investment both in physical and social infrastructure in the Eleventh Five Year Plan (2007-12).

Sources in the Government told Business Line here that following the letter the Finance Minister, Mr P. Chidambaram, forwarded to the Deputy Chairman Planning Commission, Mr Montek Singh Ahluwalia, on August 14, the Finance Ministry in its overall comments on budgetary/governance issues on the Approach to the 11th Plan is understood to have maintained that "planning under constraints is all about fixing relative priorities and not just planning to do everything sub-optimally".

Making out a case for "big bang, focused intervention in selected areas rather than continuing with the traditional approach of doing little bit of everything", the North Block is understood to have expressed itself in favour of the portfolio consolidation process it initiated recently to scale up further.

`Further consolidation'

Hence the Finance Ministry plumps for further consolidating policy and budgetary intervention of the Central and State Governments on pure public goods in addressing the issues of irrigation, flood control, watershed management, public health, primary education, vocational training, social security, basic research and governance functions of the State, leaving the rest to either the public private partnership (PPP) or exclusively to the private sector after setting right policy aberrations and addressing regulatory issues.

Giving instances of select intervention, the sources said the Finance Ministry has cited several issues of inter-sectoral linkages and relative priorities transcending the boundaries of ministries/department that are in need of urgent attention in areas of energy, transport and food. Hence, the next Plan should focus on major intervention to promote alternative sources of energy, given the potentially destabilising impact of over-reliance on petroleum energy.

Similarly, the neglected area of inland waterways and coastal shipping should receive higher attention.

Pointing out that the draft approach paper presumes pruning of non-Plan expenditure particularly on the fronts of interest payments and subsidies, the Finance Ministry states that the likely repercussion of the next Pay Commission has not been factored.

Approach paper assumption

Adverting to the Approach paper assumption of higher outlays on social sector through a medley of increase in tax revenues, cutback in the non-Plan expenditure and an increase in fiscal deficit, the sources said that the Finance Ministry cited the growing harmonisation of prices and taxes across global borders.

"This puts inherent checks on the scope of tinkering with the tax rates".

While the effort is to persist with improving revenue realisation through better tax administration, move towards general sales tax (GST) would entail revenue protection guarantees to States, thereby circumscribing the availability of net tax revenues as a budgetary resource for funding expansionary programmes.

In this context, the Finance Ministry has said in no unmistakable terms that in "balancing the conflicting requirements of using revenue improvements for fiscal consolidation or for pursuing fiscal expansionary policies, we would favour the former".

State vs Centre

As the Centre is called upon to don greater responsibilities for an increasingly larger set of goals most of which lie squarely within the domain of local bodies/State Governments such as secondary education and urban renewal, the sources said that the Finance Ministry favours all Centrally sponsored schemes (CSSs) save in a few national priority areas should be made over to the States. Pending a settlement of the outstanding issues of transfer of CSSs, the next Plan should consider that all Central budgetary interventions should require matching budgetary intervention from the States on a uniform norm of 50:50.

Even as the Finance Minister has criticised global institutions such as the IMF for emphasising too much on governance, which tend to make lending conditional for members, the Finance Ministry favours greater incentives for reform linkages to State Governments seeking Central support during the Eleventh Plan for development programmes.

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