ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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EFC's 'Restructuring Plan' : How Realistic?

How Realistic? All finance commissions so far have attempted to eliminate the states

All finance commissions so far have attempted to eliminate the states' non-plan revenue deficits through their devolution packages. Naturally, therefore, going by their estimates and calculations, the overall revenue and fiscal deficits of states would also stand reduced. The problem always has been that the estimates of the finance commissions have never turned out to be realistic. Are the exercises conducted by the Eleventh Finance Commission (EFC) likely to prove any different?

Under its terms of reference, the EFC was asked to consider and recommend "restructuring of public finances" so as to restore budgetary balance and maintain macro-economic stability. The commission has suggested measures of public finance restructuring which include stepping up revenue efforts (tax and non-tax) by both the centre and the states and curtailing and prioritising the states' expenditures to bring down their revenue and fiscal deficits. For the period 1999-2000 to 2004-05, the EFC has set stiff targets of reduction of the combined centre-states revenue and fiscal deficits – the former from 6.77 per cent to 1 per cent of GDP and the latter from 9.84 per cent to 6.5 per cent. This decline is expected to come about through a phased elimination primarily of the states' revenue deficit from 2.96 per cent of GDP in 1999-2000 to nil and their fiscal deficit from 4.71 per cent to 2.5 per cent. The targets for reduction of the centre's revenue and fiscal deficits are from 3.81 per cent to 1 per cent and from 5.64 per cent to 4.5 per cent, respectively.

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