rediff.com: Vajpayee worried over India's finances

Indian Prime Minister Atal Bihari Vajpayee on Saturday warned that the country's finances were under severe stress and called on the federal and state governments to act in tandem to reduce their fiscal deficits to release resources for economic growth.

"The Centre and the states are going through a period of severe financial stress. Our resources are increasingly proving to be inadequate to meet essential development needs," Vajpayee told a meeting of the Inter-State Council.

The one-day meeting of the council, an inter-governmental forum, is being attended by federal ministers, chief ministers of most states and senior officials.

Vajpayee said both the federal and state governments were borrowing excessively.

"The result is that the combined fiscal deficit of the Centre and the states has reached nine per cent of GDP (gross domestic product) in 1999/2000 (April-March)," Vajpayee said, adding that this was higher than the level in 1990 when the country faced a severe balance of payments crisis.

The fiscal deficit of the federal government for 1999/2000 is estimated at 5.6 per cent of GDP, sharply up from 4.5 per cent the previous year. It is seen at 5.1 per cent of GDP for the year 2000/01.

Vajpayee said an unsustainable level of deficit had serious negative effects on the economy and could derail growth projections.

"If we do not reverse the trend, we will not be able to achieve the desired GDP growth," Vajpayee said.

The government is targeting a GDP growth rate of seven to eight per cent in 2000/01, up from 5.9 per cent the previous year.

Vajpayee said the growing subsidy burden needed to be tackled jointly by both the Centre and the states.

"The Union government has taken some difficult decisions to contain subsidies at the Centre. The states would be well advised to do the same," he said.

In its 2000/01 Budget, the federal government slashed food and fertiliser subsidies and refuse to roll the cuts back despite strong opposition both from within and outside the government.

Vajpayee asked the states to reform the power sector since the losses of state electricity boards accounted for over half of the total revenue deficits of the states.

"Electricity tariffs must be rationalised and cross-subsidy must be reduced," he said.

Vajpayee suggested that a more rational policy was needed towards firms managed by the state governments and user charges on utilities and services need to be rationalised.

(c) Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.


	HOME \| BUSINESS \| REUTERS \| REPORT