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ECONOMIC RELATIONSHIP

Sneh Lata Bhatia urges to impart economic autonomy to the states, ensuring that they become more responsible. She favours economic autonomy for the States and limits the Centre's role.

The emergence of regional parties growing representation at the Centre is a natural corollary of coalition politics which has come to stay in India.

Consequently, regional issues will take precedence over the macro-economic policies. This shift in focus will spell disaster if the Centre continues to carry the fiscal cross on its shoulders on behalf of the states. Ideally speaking, the Centre's role should be limited to defence, foreign policies and maintenance of law and order. It could be further extended to the development of necessary infrastructure and foreign trade.

There is, therefore, an urgent need to impart economic autonomy to the states ensuring that they become more responsible and less extravagant. Allow them to run their economies the way they want to and not rush to their aid with massive financial doles at the drop of a hat.

The Centre, as it is, is facing a serious problem of fiscal deficit. It is now estimated to touch 6.2 per cent against the current year's target of 4 per cent. There is also a long list of second generation economic reforms which can be implemented only after the appropriate legislative reforms have taken place. The National Democratic Alliance (NDA) which enjoys a majority in the Lok Sabha can initiate the reform process provided the coalition partners do not prove to be roadblocks.

Fighting with their back to the wall, both the Prime Minister and Mr Yashwant Sinha are talking of tough decisions and tightening of belt. Towards this end, it will have to reduce subsidies, interest payments and prune the size of administration.

The Planning Commission had prepared a comprehensive package to put the states' finances back on rails. It was suggested that the states should prepare their annual plans in tune with their finances. They should also be allowed to determine their plan priorities.

Mr Singh had favoured transfer of all the centrally sponsored schemes to the states. If the proposal is implemented now, it will serve the Centre well. It will achieve its objective of streamlining the staff strength, simultaneously making the states more responsible.

Then there are the small saving schemes. The Centre mobilises these savings on behalf of the states and disburses it to them in the proportion of 70:20, 20 being the grant and 70 as loans. The states pay a very nominal interest on the loans while the Centre coughs up around 12 per cent interest. The Centre mobilises small savings worth around Rs 40,000 crore annually. Today, the accumulated savings stand at Rs 4,00,000 crore, a huge financial liability on the Centre. Interest payment alone is a major burden on the Centre. Why should the Centre bear this cross, draining its resources?

As far the subsidies go, the Centre bears a heavy cost on account of food and farm subsidies which, in fact, indirectly benefit the states. The states further top up these subsidies through free power and water to the farmers.

One is not arguing for doing away with subsidies but propagating targetted subsidies which help the poorest of the poor in the rural and urban areas. The farm input subsidies should also be targetted towards such sections. Mr Vajpayee has hinted at these harsh measures. One hopes he succeeds in implementing them despite the early rumblings from the coalition partners.

Source: The Observer of Business & Politics