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Sinha says tough decisions, political consensus, greater role of states are key to sound finance

Finance Minister Yashwant Sinha today said a different approach needs to be adopted by the Sixth Pay Commission which has greater involvement of states so that the burden on them does not become unbearable.

Inaugurating a seminar on ''Issues before the 11th Finance Commission'', Sinha also called for a political consensus on tough economic decisions which should extend beyond the party system.

Sinha said in the Fifth Pay Commission, states were at a disadvantage because of lesser involvement of the state governments.

Finances of many of the state governments were in disarray because of the difficulties they were facing in implementing the recommendations of the commission.

Sinha favoured more consultations with the state while formulating the proposals of the Pay Commission.

Dr C Rangarajan, former governor of the Reserve Bank of India and at present governor of Andhra Pradesh, Manmohan Singh, former finance minister and Prof A M Khusro, chairman of the 11th Finance Commission, addressed the gathering.

Sinha said governments which take tough decisions are the ones which survive and those who resort to populism may suffer.

He said state government should not run to the finance ministry or the Planning Commission to bail them out. It has been seen in the case of the Fifth Pay Commission that howsoever small a state, it is not in a position to resist the enhanced pay scales.

The finance minister said the federal system is in a shambles and real autonomy was not possible without financial autonomy.

Sinha said, ''We should restore our public finances. We have allowed our public finances to get completely distorted over a period of time.''

The finance minister said there had been a lot of concern over the fiscal deficit but it is important to look at the issue not at a particular point in time but over a period of a few years.

The finance minister said revenue deficit was also worrisome. Borrowing to meet current consumption is much worse than borrowing to invest in productive purposes.

''If we continue to borrow year after year and spend a large part of that borrowing to meet current consumption then repaying debt will become difficult for any party,'' Sinha said. The finance minister said steps should be taken to reduce subsidies.

Sinha said when it comes to increase in procurement prices there is no difficulty but when it is a question of increase of issue prices, many shy away.

Rangarajan said one study has indicated that the sustainable level of combined fiscal deficit should be between five and six per cent of the gross domestic product for 1997-2000. This is predicted on certain configuration of expenditure and resource patterns. ''There can be no doubt that we have to move down from the currently estimated level of eight per cent of the GDP,'' he said.

Rangarajan said fiscal responsibility must be shared both by the Centre and the states. Both levels of government should be required to maintain certain ratio of revenue to GDP and stay within prescribed fiscal deficits.

UNI

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