The finance ministry has offered the Planning Commission a marginally higher gross budgetary support of Rs 1,17,500 crore (Rs 1,175 billion) for the next fiscal compared to Rs 1,13,500 crore (Rs 1,135 billion) allocated in 2002-03. The Plan panel had demanded a GBS of Rs 1,34,000 crore (1,340 billionb) for 2003-04.
According to government officials, at current prices, the Plan support for the next year was only 3.5 per cent more than that provided this year.
Accounting for inflation, it meant a near freeze in the Budget support for the Central Plan and the Central assistance for states and Union Territories.
Officials said the Planning Commission is likely to lodge a protest with the Prime Minister that the GBS allocation for the next year was over 12 per cent lower than what it had demanded.
They said, with a GBS at more or less the same level as for 2002-03, the Plan support for various Central ministries in 2003-04 is, therefore, likely to remain at more or less the same levels as this year.
The GBS for 2002-03 at Rs 1,13,500 crore represented a 14.5 per cent increase over the previous year.
Of the total GBS of Rs 1,13,500 crore in the current year, the ministries managed to get around Rs 67,000 crore (Rs 670 billion) with the states receiving the balance Rs 46,500 crore (Rs 450 billion).
Officials said higher public investment this year was likely to help the Indian economy register a growth of about 5.8 per cent.
To sustain the recovery, it was necessary to opt for higher government expenditure for at least one more year.
The absence of additional funds meant that the money required for special programmes on employment, roads, power and family welfare would not be available.
The finance ministry had initially told the Planning Commission that it would be able to provide a GBS of only Rs 1,02,000 crore (Rs 1,020 billion).
After considerable pressure from the Planning Commission and the intervention of the Prime Minister, the ministry has increased the support by Rs 15,500 crore (Rs 155 billion).
The first signals of a tiff over the GBS were available as early as October 23, 2002, in a letter by Finance and Company Affairs Minister Jaswant Singh to Planning Commission Deputy Chairman KC Pant.
While Singh supported the Plan Panel's argument for a higher outlay, he pointed out that the entire plan expenditure was met through borrowed funds.
"While borrowing itself is undesirable, it must be used for productive expenditure and not for current expenditure," he had told Pant.
Even in the mid-year review of the economy which Singh presented recently in Parliament, he drove home the point that a Plan expenditure that does not increase the government's revenues in subsequent years creates problems for servicing the debt incurred in financing the Plan itself.
Further, a large Plan size, when combined with indifferent implementation, leads to a deterioration of fiscal balances both at the state and Central levels.
Clearly pushing for a lower Plan size, the mid-year review stated that major possibilities for augmenting Plan resources existed through public-private partnerships in both physical and social infrastructure.
Such partnerships should be vigorously pursued and in fact, should be the default option in due course, it said.