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No consensus on DA freeze, debt swap

By Alok Mukherjee

The Prime Minister, A. B. Vajpayee, the Finance Minister, Jaswant Singh, and the Tamil Nadu Chief Minister, Jayalalithaa, at the Chief Ministers Meeting on Fiscal Situation Of States in New Delhi on Friday. — PTI

NEW DELHI OCT. 18. Despite some States pitching in for strong economic measures, major decisions on freezing dearness allowance, bonus and the commutation of pension of Central and State Government employees were deferred at a meeting the Prime Minister, Atal Behari Vajpayee, had with the Chief Ministers here today to discuss the fiscal position of the States.

Similarly, the debt-swap programme proposed by the Centre for retiring high-cost past debts of the States by fresh low-cost borrowing was also put off for further reworking.

That nothing much would come out of the meeting seems to have dawned on the Centre even before the meeting began this morning. In his opening remarks at the meeting and before the Chief Ministers spoke, the Union Finance Minister, Jaswant Singh, made it clear that on the issue of payment of DA, bonus and the commutation of pension, a broader consensus was required which was not there at present. "Therefore, any decision on this would have to be deferred,'' he said, practically withdrawing the item from the agenda of the meeting.

Similarly, on the contentious issue of debt swap, Mr. Singh said that a consensus had not emerged. Some States had expressed difficulty with the scheme during the current year due to cash flow problems and a high-power committee would discuss the matter further with the States. The Centre, however, agreed to the States' demand for transfer of funds under the Centrally-Sponsored Schemes (CSS) to the consolidated fund of the State Governments instead of routing them through registered societies, with the pre-condition that the States would pass on the funds to the end-users within a stipulated timeframe of about two-three weeks.

On the demand for powers to mobilise more tax resources, Mr. Singh said that while the State-level Value Added Tax (VAT) would be implemented from April 1 next, amendments to Article 269 of the Constitution were under way to place the services in the Concurrent List so that States could tax certain services. Issues such as quantum of compensation to the States in case of some initial revenue loss due to a switch to VAT would be sorted out soon.

As for the demand for a more liberal "ways and means advance" scheme, under which limits on overdrafts by the States and the duration of their overdrafts are regulated, Mr. Singh said the Reserve Bank had appointed a committee under the former Expenditure Secretary, C. Ramachandran, to give recommendations.

The States said that the recent Supreme Court judgment on pay scales of subordinate judiciary implied a total expenditure of Rs. 14,000 crores, most of which would have to be borne by them. This would be taken up in an appropriate manner after discussions, Mr. Singh said.

Earlier, addressing the meeting, the Prime Minister said, "I must stress — at the cost of repetition — that unless we broaden the area of political consensus and consensus between the Centre and the States on critical developmental and governance reforms, the problems that we currently face would get compounded."

Mr. Vajpayee said the fiscal deficit of the Centre and the States together was unacceptably high, seriously affecting the country's economic and social development. It had widened the gap between people's expectations and the system's ability to fulfil them. "I, therefore, appeal to you to help make today's conference a major milestone in our ongoing efforts at achieving better fiscal discipline and thereby attaining higher growth rates," the Prime Minister said. At the conclusion of the conference, Mr. Vajpayee's appeal went largely unheeded.

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