States want relaxation in fiscal deficit rule to stay

NEW DELHI: States on Wednesday asked the centre to continue the relaxation in meeting the fiscal deficit target in the next financial year as well.

The centre had in the last budget relaxed the debt consolidation and relief facility (DCRF) guidelines by hiking the fiscal deficit target to 4% of the respective gross state domestic product (GSDP) from 3.5% earlier, to enable states increase borrowings for undertaking capital expenditures in wake of the global economic crisis.

The states also expressed hope that the central government would continue with policy of enhanced expenditure on rural infrastructure schemes.

The finance minister, however, highlighted the need for fiscal consolidation at the earliest.

The demand was raised by the states at a pre-budget meeting with finance minister Pranab Mukherjee.

The finance Minister said the waysand-means position of the state governments shows that some of them are holding large cash balances and they need to utilise these surpluses for development activities. The finance minister also said the impact of the overall fiscal stimulus of the government has started showing results and the country’s gross domestic product (GDP) is expected to expand by around 7.75% in the current financial year.

He also expressed hope that the implementation of the Direct Taxes Code and the proposed Goods and Services Tax would lead to a broadening of the tax base, a simplified tax structure and an improvement in tax compliance. State finance ministers, who will meet Mr Mukherjee on January 29, on GST want the implementation of the tax to be postponed by an year to April 1, 2011.

The finance minister also stressed on the need to increase agricultural productivity and invited suggestions, including the scope for public private partnership in improving the effectiveness of public investments in the agriculture sector for achieving an annual growth rate of 4%.