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`States passing through financial crisis'

By Our Special Correspondent

T.R. Prasad, Member, 12th Finance Commission, delivering the Damodaram Sanjivaiah Endowment lecture at SV University in Tirupati on Saturday.

TIRUPATI. Oct 23. T.R. Prasad, Member, Twelfth Finance Commission, said that almost all the States in the country were passing through an acute financial crisis as the bulk of their revenue including tax and non-tax revenues and devolutions and grants from the Finance Commission were spent `predominantly' in meeting salaries, pensions and interest payments. He pointed out that in some States the expenditure exceeded 90 per cent of the revenue and cited the example of West Bengal which spent a whopping 101.76 per cent of its funds on salaries, pension and interests followed by Maharastra (91per cent). The interest payments alone accounted for a little over 25 per cent of the total revenue receipts of the States, he said.

Mr. Prasad was speaking on the theme, `Growth, governance and fiscal reforms-- Challenges of a new triangular paradigm' while delivering the Late Sri Damodaram Sanjivayya Endowment Lecture in SV University here today.


He said that major fiscal indicators of all States clearly pointed to the deterioration that set in after some improvement till 1995-96 and felt that given the high salary intensity, very little was left for effecting actual deliveries. He said compression in salary and subsidy as a means to release increased flows to productive sectors has so far met with very limited success and pointed out that added revenues, therefore, could only come from higher growth rates without which governance in India could become a casuality. To stabilise growth and governance, a new generation of fiscal reforms now becomes critical, he said.

Stating that the Indian economic performance had gone through three distinct phases, Mr. Prasad cited the reforms initiated in 1991 as the third phase marked among other developments by an extensive facilitation of the FDI.


Mr. Prasad said that despite the slew of reforms, India was seen as an under-performer and added that the Chinese economy which was comparable to the Indian economy in 1970s was now 2.5 times the size of ours and was surging ahead. China is now seen as one of the two engines driving the world economy, the other being USA, he said.

Continuing on his Chinese phenomenon, Prasad also said that FDI in China was 13 times bigger than that of India's and pointed out that though India had better developed institutions than China with less corruption, an established rule of law and protection of property, it badly lacked in education and infrastructure which along with openness to trade are key ingredients for rapid growth.

Mr. Prasad said deep fiscal reforms on the lines proposed by Kelkar Task Force were indeed critical for fulfilling the aspirations of growth and good governance in the country as it held the key to expansionary fiscal consolidation that promised the needed growth and added revenues. Concluding he said that India's success in moving towards the new triangular paradigm-- growth, governance and fiscal reforms--hinged heavily on the urgency with which its political leadership lifted itself above the party and sectarian interests. The world cannot marginalise India, India alone can marginalise itself, he quoted from a report.

SVU Vice-Chancellor, P. Murali, presided

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