Centre to offset state revenue losses initially

NEW DELHI: The value-added tax regime will be implemented nation-wide from April 1, 2003 and the Centre will fully compensate the states for any revenue losses in the first year, finance minister Jaswant Singh has said.
Speaking to reporters at the conclusion of the NDC meeting, Mr Singh said the draft report on the constitution amendment on service tax would be sent to the empowered committee of state finance ministers on VAT for approval.
The amendment Bill is to be introduced in the Budget session of Parliament, he added. Service taxes is expected to become a major source of revenue for the states.
Deputy planning commission chairman KC Pant summing up the proceedings of the day told reporters that the Centre was willing to reduce the loan component in the Central assistance to the states from 70% to 50%.
Most states have been getting 70% of the central assistance as loan and balance 30% as grants. Also, the Centre charges about 11.5% interest on these loan, although sovereign borrowing from the market attracts about 7.5% interest.
The high component of loan coupled with high interest rates has pushed several states to bankruptcy and the Centre has been considering various rescue measures.
“We are going to have a look into this,� Pant said after the meeting of the National Development Council, which “unanimously adopted� the 10th Five Year Plan.
He added the entire issue of making cheaper funds to states was being discussed at various fora, and reduction of states debt had also been referred to the 12th Finance Commission.
Emphasising on the need for taking hard decisions, Mr Pant said a national consensus on crucial issues was a must to ensure that challenges could be met and crucial reforms executed.
“There is need for consensus among various political parties so that reforms can be insulated from political debates and can be proceeded with smoothly,� he said.
Asked about the scepticism among states on feasibility of 8% growth target, Mr Pant said: “Nobody asked us to lower the targets.�
Mr Pant also said that all four sub-committee proposed by the PM in his inaugural speech would be given the status of empowered sub-committee, as demanded by the states during the course of the day.