The Hindu Business Line : Karnataka urged to take steps to curb fiscal deficit

KARNATAKA, which has the foundation for a satisfactory basic Public Financial Management and Accountability (PFMA), has to adopt more measures to bring effective control over the mounting fiscal deficits.

Budget being the primary decision making tool, its sanctity and effectiveness needed to be further strengthened, said the World Bank.

In an Action Plan that it felt would further strengthen the State's approach to PFMA, the World Bank has suggested that the State should strengthen the Budget by making realistic allocations and restricting new initiatives to the Budget, and rebalancing the financial controls by greater check on power subsidy obligations and capital projects.

The Action Plan was part of the Bank's first study of Public Financial Management and Accountability of Indian States, presented here on Tuesday.

Other important suggestions made by the Bank included shifting to departmental budgeting and providing them with greater flexibility and incentive to perform, improving predictability of fund flows to departments and improving accounting.

The report also suggested strengthening of internal controls, improvement in audit responsiveness, further improvement in information disclosure and accessibility, strengthening capacity for financial management and accelerating procurement reforms. Mr Stephen Howes, World Bank lead Economist for India, who made a presentation on the report, suggested improvements in legislative review processes and modernising the audit system. He also wanted the State to abolish the distinction between Plan and non-Plan expenditure and introduce satisfactory accounting and financial reporting standards.

Earlier, Mr Michael Carter, Country Director, World Bank, said while the State's growth record was good, it was endangered by infrastructure bottlenecks. Karnataka's rural population was faced with recurrent drought and water shortages, and the State's human development indicators have lagged behind those of its southern neighbour, Tamil Nadu. He said another study on Orissa had been released and a third one on Uttar Pradesh was nearing completion.

He said fiscal reform was a necessary ingredient for improving development effectiveness. A bankrupt government was a drag rather than a catalyst for development.

The Deputy Chief Minister, Mr Siddaramaiah, who delivered the keynote address at the conference, later told mediapersons that effective steps needed to be taken to reduce power subsidy. Stating that currently the subsidy amounted to over Rs 3,000 crore, he said for every unit of power sold, the State was subsidising to the tune of Rs 1.10 and this trend had to be reversed. He also said the transmission and distribution losses should be brought down considerably.