Plan panel working on States' problems relating to TFC

New Delhi, Oct 24 (UNI) The Planning Commission is engaged in an intensive exercise, based on its interactions with the States on the problems emanating from recommendations of the 12th Finance Commission (TFC), with a view to work out a solution before the ensuing meeting of the National Development Council (NDC).

Plan panel sources said that a solution to these issues would be worked out before the Eleventh Plan is finalised by the NDC to be held in a month's time.

The NDC is being convened to approve the Approach Paper to the Eleventh Plan (2007-11). The Approach Paper recently got the nod of the Full Planning Commission.

The sources said borrowing by the States always required the Union Government's permission and access to market borrowing (SLR eligible bonds) was always strictly controlled. However, until recently there was no cap on total borrowings and States were encouraged to use borrowed resource, other than market borrowings to finance the Plan.

With the 12th Finance Commission linking debt re-structuring to the passage of Fiscal Responsibility and Budget Management Act (FRMBA) with a prescribed fiscal deficit as a percentage of GDP, the States now have a cap on total borrowings. This has raised some problems for the States, the sources said.

The States are of the view that the three per cent fiscal deficit limit was 'too inflexibile.' It has been argued that a higher fiscal deficit can be tolerated if the quality of the deficit is such as to encourage a higher rate of growth.

In general, States with a low initial debt ratio and high GDP growth can afford a higher fiscal deficit consistent with achieving the desired debt ratio in a given period.

The Commission is of the view that as it is not easy to determine state-specific limits, the Planning Commission could set up a Group to propose limit for each State, taking this problem into consideration.

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