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Development expenditure of States has been showing upward trend. 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.124,112.22 crore for 2004-05, it has gone up to Rs.142,935.54 crore for the current fiscal.
A major factor for 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 State in 2004-05 was 65,511.99 crore against Rs.59,662.70 crore for the previous year. Additional allocations under NCMP for critical social sectors such as primary education, nutrition and social security gave a signal to State governments to focus on such areas in their Plan outlay.
State's Own Resources (SOR) for Annual Plan 2004-05 have also shown improvement. Details of SOR show improvement in non-borrowed resources by 27.8 per cent and increase in State's own borrowings by 7.7 per cent over the Annual Plan 2003-04.Improvement in the balance from current revenues (BCR) over Annual Plan 2003-04 for non-special category States has been significant. The overall improvement is on account of higher devolution due to buoyancy in tax revenues of the Centre and more importantly near stabilization in the growth of non-plan revenue expenditure achieved by reforming States.
State level public enterprises (SLPEs) continued to be a drag on Plan resources of States. The estimated contribution of (-) Rs.2251 crores for Annual Plan 2004-05, however, ndicated improvement of Rs.1803 crores over the approved estimate for 2003-04 due to accounting adjustments. The fact that several States have taken up serious steps for reform, privatization or winding of public enterprises is a move in the positive direction. Power sector reforms had made good progress with most States bringing the power tariff regime under independent State Electricity RegulatoryCommission(SERC).
According to the annual plan report of the Planning Commission, the borrowings of States estimated in the Annual Plan for 2004-05 have increased over the approved Plan for 2003-04 mainly on account of higher loans from net small saving collections. Higher net collections of small savings and completion of the debt swap scheme under which States ere to utilize a portion of net small savings collection for repayment of outstanding Central loans carrying over 13 per cent interest rates, are responsible for the increase. During 2004-05, total borrowing by States from own resources were Rs.80358.76 crore against .74623.31 rore a year before.
Negotiated loans and advances continued to decline as a result of the ceiling on borrowings under the Medium-term Fiscal Reforms Programme (MTFRP) and lack of flexibility in the terms of many such borrowings from financial institutions. Decline in negotiated loans, especially those raised through SPVs also reflect improvement in the fiscal situation of States. Even though debenture/bonds issued by SLPs increased over the previous year, this practice is not as prevalent, it seems to be restricted to the seven States of Himachal Pradesh, Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Rajasthan and Tamil Nadu. Apart from this development credit rating of bond issuing State level enterprises becoming an accepted norm is recognized as a positive development.
A major concern regarding States finances in general and Plan financing in particular is the level of incremental borrowing. 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 borrowings to bridge the gap and finance the Plan outlay. Restricting the overall level of incremental borrowings is, therefore, considered inevitable in view of the existing debt burden of States. 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 MOUs with the Ministry of Finance for Medium Term Fiscal Reforms Programme (MTFRP). Negotiated loans from financial institutions and issue of bonds/debentures of states are now strictly monitored under Art.293 (3) of the Constitution.
Shortfall in the actual absorption of external aid against projections made in the approved Plan is an rea of concern. State governments should make effort to attract external aid available to finance projects as well as programmes, through expeditious implementation of EAPs and credible economic reforms programmes.
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