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'States could borrow 30% from the market'

Last updated on: March 23, 2005 16:40 IST

Planning Commission deputy chairperson Montek Singh Ahluwalia talks about reorganising central loans to the states, in the second of a two-part interview with Mamata Singh.

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How is the government handling the issue of doing away with Central loans to states and letting them borrow from the market?
I have written to all state chief ministers informing them of their options under the new system. If they don't want loans from the government, they have been asked to write to the finance ministry, informing them that they want to borrow directly from the market. The Planning Commission has assured them of all support in working out the procedures.If states do not want to borrow from the markets, money will have to be provided on business-as-usual basis. Modalities are currently being worked out by secretaries in the department of expenditure and Planning Commission.

What are the issues that will have to be addressed?
States get normal central assistance (NCA) and additional central assistance from the Centre. NCA is released on a tranche basis through the year. So, any state that wants to borrow, will be given permission, based on our recommendation to the finance ministry.
The current norms for disbursement of NCA are that a certain amount is disbursed in the first tranche and states have to show expenditure certificates against which the subsequent amount is released. How to handle this under the new system is an issue.
One possible way of tackling it is that no separate accounts of the different windows are maintained. At the beginning of the year, based on the loan component of the overall assistance provided to a state, an assessment could be made of the expected overall borrowing requirements, given the utilisation levels of that particular state in the past.
States could be given permission to borrow up to a limit, say 30 per cent, which they could exercise, ideally when market conditions permit. We would debit against this the amount that would be required given the utilisation of ACA.
That is, as soon as the grant component is disbursed, the corresponding amount of loan would be debited from the borrowing permission given. Let them have a proportion of their yearly amount and when they utilise the borrowing permission, give them more borrowing permission.

What kind of monitoring mechanism is likely to be put in place to keep track of the outcomes of the new programmes launched by the government?
The Planning Commission will set in motion a process by which we can subject some of the major programmes we are launching to an independent evaluation.
These programmes will be functioning from 2005-06 and we want to subject them to good evaluation, so that in subsequent years, we can redesign the programmes to take into account any shortcomings that are identified.
We will be in touch with major research institutions across the country. It would be preferable to hand over evaluation of specific programmes to institutions located in a particular area.
For instance, IIM Bangalore could handle evaluation of a programme being undertaken in Karnataka. Institutions like the NCAER have a lot of survey capabilities.
We could also look at a model where the surveys are conducted by such an institution while analysis is done by a local institution. All our evaluations, after going in through some internal certification would be made publicly available.