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state report 11

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state report 11

    REPORT OF

    THE WORKING GROUP ON

    STATES’ RESOURCES

    FOR

    THE ELEVENTH FIVE YEAR PLAN

    (2007-2012)

    JULY 2007

     WORKING GROUP ON STATES' RESOURCES

Chapter 1 : Introduction

Chapter -2 : Concepts & Definitions

Chapter -3 Review of the Tenth Plan

Chapter 4 : States’ Resources for the Eleventh Plan

     A. Assumptions underlying the Working Groups’ Projections

     B. Projection Of States’ Resources for the Eleventh Plan (2007-12)

Chapter 5 : Issues In Financing the Eleventh Plan of the States

     1

2

    Introduction

     Chapter - 1

    Constitution and Terms of Reference of the Working Group/ Sub-Groups

1.1. The Steering Committee on Financial Resources for the Eleventh Five Year Plan

    (2007-12) set up three Working groups in January 2006, one to examine the trends in

    Savings and the projections for the Eleventh Plan, the second one to deal similarly with

    Resources of the Centre and the third one to deal with Resources of the States. The Working

    Group on States‟ Financial Resources was set up under the chairmanship of Dr. E.A.S.

    Sarma.

1.2. The composition and Terms of Reference of the Working Group are as follows.

    Composition of the Working Group on States‟ Resources:

1) Dr. E.A.S Sarma Chairman

    2) Representative of CAG Member

    3) Joint Secretary (PF I),M/o Finance Member

    4) Joint Secretary (Budget) Member

    5) Pr. Finance Secretary, Govt. of Maharashtra Member

    6) Pr. Finance Secretary, Govt. of Assam Member

    7) Pr. Finance Secretary, Govt. of West Bengal Member

    8) Pr. Finance Secretary, Govt. of Haryana Member

    9) Pr. Finance Secretary, Govt. of Karnataka Member

    10) Pr. Finance Secretary, Govt. of Rajasthan Member

    11) Executive Director (RBI) Member

    12) Dr. Mahesh C Purohit, Director, Foundation for Member

    Public Economics and Policy Research 13) Shri Haseeb A. Drabu Member

    14) Dr. A.K. Singh, Professor, GIDS, Lucknow Member

    15) Dr. (Mrs.) R. Kavita Rao, Senior Fellow, NIPFP Member

    16) Shri Valluri Narayan Member

    17) Shri P.V Rajaraman, Member

    18) Dr. N.J.Kurian, Director, CSD Member

    19) Director(PPD) Member

    20) Sh. S. Lakshmanan, Director (FR)/ Member Secretary

     Sh. K.M.M. Alimalmigothi, Director (FR)

     3

    Terms of Reference of the Working Group on States' Resources

1) To analyse the resource position of the States with particular reference to the

    implementation of the recommendations of the Twelfth Finance Commission (including

    replacement of Central Loans by Market Borrowings), fiscal responsibility legislation (s), debt

    restructuring introduction of VAT, tax on services, flow of EAP funds and other policy

    changes in that regard;

2) To examine issues arising from (a) flow of funds from National Small Savings and its

    related problems; and (b) Establishment of Loan Council;

    3) To examine the basis of distribution of Central plan assistance to States (including the Gadgil-Mukherjee formula and ACAs) and suggest changes if required;

4) To examine the flow of funds under CSS and suggest methods of integrating them

    into the scheme of financing of the Plan of the States;

5) To examine the special dispensation provided to Special Category States in the

    allocation of Central Plan assistance and suggest changes if required;

6) To examine the relevance of the Plan Non-Plan distinction in the expenditure in the

    State Governments and to suggest changes if any in the definition of the plan expenditure;

7) To examine the classification of expenditure in terms of `Revenue‟ and `Capital‟

    especially in the light of the requirements under the Fiscal Responsibility Act and its

    implication for plan programmes;

8) To examine whether, and to what extent, investment by State PSUs financed through

    Internal and Extra-budgetary Resources (IEBR) should continue to form a part of the State

    Plan.

9) To examine the role of SPVs, PPP and other innovative methods for additional

    resource mobilisation by the State governments for financing Plan expenditure

    10) On the basis of the above, to suggest the basis for making projections for 'resources‟ and 'expenditure' for the States during the Eleventh Plan period;

11) To prepare and present projection(s) on the scheme of financing for the Eleventh Plan

    for the States (including UTs with legislature) separately (and combined).

     4

1.3. In the first meeting of the Working Group, preliminary discussions were held on the

    trends in the States‟ finances and the factors that were likely to influence the same during the

    Eleventh Plan. Keeping in view the need for examining the various dimensions of States‟

    finances in depth, the Working Group decided to constitute three Sub-Groups, one to cover

    Tax resources of the States, the second one to cover the non-tax resources and the third one

    to look at the expenditure trends.

1.4. The composition and Terms of Reference of the Sub-Groups are as follows:;

    Sub-Group (Tax Resources)

    Composition

     1) Dr. Kavita Rao Chairperson

    2) Finance Secretary, Maharashtra Member

    3) Finance Secretary, Karnataka Member

    4) Finance Secretary, Assam Member

    5) Finance Secretary, Nagaland Member

    6) Finance Secretary, Mizoram Member

    7) Finance Secretary, West Bengal Member

    8) Sh K.M.M. Alimalmigothi, Director (FR.) Member Secretary

     Terms of Reference

1. To estimate the year-wise tax resources of the States (including UTs with legislature)

    separately and combined for the Eleventh Five Year Plan period (2007-12), keeping in view

    the implementation of VAT, recent decisions on CST and tax on services

2. To suggest possible reform measures for maximizing the tax-SGDP ratios of States within

    the time frame of the Eleventh Five Year Plan and the consequent additional tax revenues

    that could accrue on that account to the States

     5

    Sub-Group (Other than Tax Resources)

     Composition

    1) Dr. A. K. Singh Chairman

    2) Dr. Haseeb A. Drabu Member

    3) Secretary Finance, Uttar Pradesh Member

    4) Finance Secretary, Gujarat Member

    5) Finance Secretary, Assam Member

    6) Finance Secretary, Orissa Member

    7) Finance Secretary Maharashtra Member

    8) Finance Secretary, West Bengal Member

    9) Finance Secretary Tami Nadu Member

    10) Dr. Mahesh C. Purohit, Director, Foundation for Member

     Public Economics and Policy Research

    11) Representative from RBI Member

    12) Sh. S. Lakshmanan,Director (FR)/ Member Secretary

     Sh. O.P. Shemar, Director (FR.)

    Terms of Reference

    1. To estimate the year-wise resources (other than tax resources) of the States (including UTs with legislature) separately and combined for the Eleventh Five Year Plan

    (2007-12), keeping in view the implementation of the recommendations of the Twelfth

    Finance Commission (including replacement of Central Loans by Market Borrowings), FRBM

    requirements of Centre and States, Debt Restructuring, implementation of VAT, flow of CSS

    funds, flow of EAP funds and other relevant policy changes.

    2. To examine issues of and implications of (a) National Small Savings and (b) Establishment of Loan Council.

    3. To explore the scope for new measures and suggest targets for ARM by the State Governments, including innovative instruments such as SPVs, PPP.

    4. To estimate the year-wise net accrual to State Provident Funds, SLR based Net Market Borrowings, proceeds from disinvestment of SLPEs and net Miscellaneous capital

    receipts.

    5. To estimate the contribution of SLPEs & to suggest as to what extent investment by SLPEs through IEBR should continue to form part of the State Plan.

    6. To estimate the non-SLR based market borrowings through investments of bonds/debentures.

    7. To estimate the negotiated loans from various Financial Institutions including LIC/GIC, NABARD, REC, IDBI etc.

     6

     To estimate the year-wise flow of external assistance available for the financing State

    Plans, in the light of the recent trends in utilization of external aid for EAPs, flow of FDI etc.

    The Sub-Group is also requested to : 8.

    ? Examine the flow of funds under CSS and suggest methods of integrating them into

    the scheme of financing of the State Plans.

    ? Examine the special dispensation provided to Special Category States in the

    allocation of CPA and suggest improvements, if required.

    ? Examine the basis of distribution to CPA to States (including the Gadgil-Mukherjee

    formula and ACAs) and suggest changes, if required

    th ? Comment on the likely impact of the 6Pay Commission (to be constituted) on the

    State‟s Plans.

    Sub- Group (Expenditure)

    Composition

1) Shri Valluri Narayan Chairman

    2) Dr. N.J.Kurian, Director, CSD Member

    3) Smt. Rita Mitra, Principal Director, CAG, Member

    4) Finance Secretary, Andhra Pradesh Member

    5) Finance Secretary, Bihar Member

    6) Finance Secretary, Chhattisgarh Member

    7) Finance Secretary, Haryana Member

    8) Finance Secretary, Jammu & Kashmir Member

    9) Finance Secretary, Jharkhand Member

    10) Finance Secretary, Kerala Member

    11) Finance Secretary, Madhya Pradesh Member

    11) Finance Secretary, Punjab Member

    12) Finance Secretary, Rajasthan Member

    13) Finance Secretary, Tamil Nadu Member

    14) Finance Secretary, Uttaranchal Member

    15) Sh. S. Lakshmanan, Director (FR)/ Member Secretary

     Sh. Sanjeev Joshi , SRO (FR.)

    Terms of Reference of the Sub-Group (Expenditure)

    To estimate the year-wise expenditure of the States (including UTs with legislature)

    separately and combined for the Eleventh Five Year Plan (2007-12), keeping in view the

    implementation of the recommendations of the Twelfth Finance Commission, FRBM

    requirements of Centre and States and Debt Restructuring, possible reform of SLPEs and

    devolution to the urban and rural local bodies

The Sub-Group is also requested to:

     7

    o consider the existing expenditure classifications viz. Plan & non-Plan and

    Capital & Revenue and suggest rationalization

    o examine the scope for expenditure reforms, including right-sizing of various

    government departments, public-private partnerships etc. and recommend

    policy changes

    th1.4 In all, the Working Group held three meetings, the first one on 15 of July, 2006, the thrdsecond one on 24 of January, 2007 and the last one on 3 July, 2007. The lists of Members/

    participants at these meetings are provided at Annexes 1.1, 1.2 and 1.3. The three

    Sub-Groups held their meetings separately in close consultation with the Chairman and the

    other members of the Working Group. Their reports were available to the Working Group by

    January, 2007.

1.5 The Working Group and its Sub-Groups faced some difficulty in gathering

    comprehensive and comparable data on States‟ receipts and expenditure for the previous

    years. As a result, the Group had to make some assumptions while arriving at the projections

    for the Eleventh Plan. The assumptions are spelt out in the following chapters.

1.6 This chapter viz Chapter 1 is an introductory one. Chapter 2 provides an explanation

    of the concepts and definitions relating to States‟ resource mobilization. By and large, the

    Working Group has tried to adopt the same concepts and definitions as adopted by the

    Working Group on States‟ Resources for the Tenth Plan (2002-07). Chapter 3 provides a

    review of the trends in the mobilization of Plan resources by the States for the Tenth Five

    Year Plan and some of the previous Plans with special reference to the variance between

    estimates and actuals.1.7 Chapter 4 deals with the projections made by the Working Group

    for the Eleventh Five Year Plan. This Chapter spells out in detail the assumptions that form

    the basis for these projections.

1.7 There are a number of policy issues that arise in assessing the resources of the

    States for the Eleventh Five Year Plan and they need to be addressed by the Planning

    Commission, in consultation with the Ministry of Finance. Chapter 5 highlights these issues in

    some detail.

     8

    Concepts & Definitions

     Chapter 2 2.1. Government's receipts net of non-plan expenditure is a measure of Aggregate Plan Resources that are required to finance the Plan expenditure during the Five Year Plan under

    consideration. Broadly, government expenditure during any given Five Year Plan comprises

    of two parts. First is the non-plan expenditure that is required for maintaining the facilities

    created during the previous Plans. Second is the Plan expenditure that is required for

    creating new facilities during the Five Year Plan under consideration.

2.2. The Working Group for the Tenth Plan adopted the following concepts and

    definitions.

    Aggregate Plan Resources of State Governments

Aggregate Plan Resources (APR) is Aggregate Receipts (AR) less Non-Plan Expenditure

    (NPE). .

APR = AR - NPE;

AR comprises Current Revenues (CR) excluding Plan Grants, Plan Grants (PG), Non-Debt

    Capital Receipts (ND) and Net Borrowings.(NB).

AR = CR + PG + ND + NB;

NPE comprises Non-Plan Revenue Expenditure (NPRE) and Non-Plan Capital

    Expenditure (NPC).

NPE = NPRE + NPC;

Thus,

    APR = {CR + PG + ND + NB} - {NPRE + NPC};

Rearranging,

APR = (CR - NPRE) + PG +(ND - NPC) + NB

Where (CR - NPRE) is Balance from Current Revenues or BCR

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