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P. Devarajan

RBI is quite surprised by the sense of responsibility being shown by most State governments to rein in fiscal deficits and leave something for development.

THIS week, officials of some of the State governments including Kerala, met the RBI to further a plan to craft a Fiscal Responsibility Bill at the State-level on the template made available by the Centre to manage fiscal deficit.

Seemingly, the officials have the promise of the ruling political groups to pass similar Bills at the State-level provided it gives reasonable room for abuse. They argue, and quite rightly, that the Fiscal Responsibility Bill passed by Parliament, provides enough space for wasteful expenditure by any Government.

At present, despite the Bill, revenue expenditure accounts for nearly 85 per cent of the Centre's aggregate expenditure, with 15 per cent going for investment. It looks as if Punjab, an allegedly frontline State on economic development, is nursing a deficit of Rs 8 crore per day, which even Laloo's Government in Bihar may find hard to match. Of course, Punjab and Bihar will dispute the contention. Still, RBI is quite surprised by the sense of responsibility being shown by most State governments to rein in fiscal deficits and leave something for development. Details of the common points in the Bill are being discussed with RBI driving in the point that subsidies cannot go on forever.

In at least five years, most State governments should have in place a Fiscal Responsibility Bill (by that time there may be no governments), say the doubting bankers on Mint Street who have to tackle defaulting State governments on a daily basis to get back funds placed in high-yielding bonds.

Others give some States such as Maharashtra and Kerala just about a year for the Bill to get passed by the Assemblies. If it does happen, State Electricity Boards, State Road Transport Corporations, State Irrigation Corporations, State Hospitals, state-run schools and a host of other free or under-priced facilities will have to bear user charges. Subsidies have only ended in the pockets of politicians and they now realise that political survival is at stake as sources of free monies are drying up. In all States, all state-run facilities have turned non-viable. RBI is acting as a facilitator, taking off from the position of an arranger of bi-annual meetings of State finance secretaries on fiscal deficits.

Members of the standing committee on finance (Lok Sabha) seem to have told the Government to come up with a fresh plan to bring some discipline in the co-operative banking sector.

It looks as if they are quite reluctant to allow RBI to oversee co-operative banks till at least the elections are over. The Finance Ministry had tagged amendments to the Banking Regulation Act and other acts with reforms in the co-operative banking sector. Inquiries indicate the standing committee is not prepared to accept the original suggestion.

Maharashtra, Andhra Pradesh, Gujarat and Karnataka are a few States which are strongly against making any changes to the extant structure of co-operative banking. The Finance Ministry and RBI are in a spot as the JPC has ordered for stiff action. looks as if no banking Bill will be taken up in the winter session of Parliament with the Vajpayee Government distracted by the need for political survival.

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