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Business Commentary/ Rajiv Shukla

Gujral's largesse, states' nemesis

It is hard to believe but one decision of the Inder Kumar Gujral government has destroyed the financial structure of most of the state governments. Several big states like Uttar Pradesh, Punjab, Jammu and Kashmir and Karnataka are on the verge of financial emergency.

The situation is no better in many states and the provincial governments have no money to pay salaries to their employees. They have crossed the limit of overdraft and the central government is also finding it difficult to bail out these states.

The government is already interacting with the World Bank for a Rs 150 billion loan, and the World Bank has put a condition for opening up the power sector to foreign companies.

Although the financial situation in more than 15 states was already bad and states like Bihar have been crisis-ridden for several years now, it was not that bad in many states before Gujral government's decision to implement the Fifth Pay Commission report.

This single decision has broken the back of most of the state governments and the central government is also facing a very tough time as the fiscal deficit has gone very high.

Gujral might have taken this decision under pressure from the Left Front leaders who cannot get over their trade union mentality, but it has caused massive damage to the nation's economy.

In states like Punjab and Andhra Pradesh, 86 per cent of total government money is being spent on salaries. Only 14 per cent is left for development work and other administrative work for the functioning of the state.

In Jammu and Kashmir, 100 per cent of the state funds are being used for salaries and not even a single penny is spent on other things. In some states, the salary budget is more than 110 per cent and state governments are borrowing money from the overdraft pool to pay salaries.

The total picture is so gloomy that in three years time, 90 per cent of the state governments will be bankrupt and they would be forced to declare financial emergency.

The central government's economic condition is also going to be very bad and in this situation, the Centre would not be able to help any state government. One can imagine how people would agitate if there is no developmental work, leading to chaos in many states.

All this has happened because the salary budget has suddenly gone up 10 times after the implementation of the Pay Commission's recommendations.

To woo his Communist friends in a bid to save his government, Gujral has compromised with the national interest. Worse, he gave Rs 80 billion more under pressure from trade unions.

In fact, Gujral was in a hurry to go to the USA and these unions had threatened a nationwide strike. Just because he would not have been able to go to the USA in that situation, he donated Rs 80 billion more from the national exchequer.

P Chidambaram, the then finance minister and T S R Subramaniam, the then Cabinet secretary, opposed it.

But Gujral did not listen to them. He got angry with Subramaniam. Every state government had pleaded with Gujral that before implementing it, he should consult them, but he ignored the plea.

Rajiv Shukla

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