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Government of India
Ministry of Finance
01-November-2010 14:26 IST
• Indian Economy on the Path of Robust growth rate of Around 9% Average: FM
• Asks state Governments to Strengthen PDS to Minimize the Impact of Inflation on Vulnerable Section of Society
• Asks the States to Bring Necessary Fiscal Reforms to Achieve the target of Fiscal Consolidation
• Asks States to Utilize Viability Gap Finding Scheme, India Infrastructure Development Project and PPP Pilot Project Initiative

 

            Union Finance Minister, Shri Pranab Mukherjee said that our economy is on the path of recovery and would soon go back to the robust growth rate of around 9% average.   Addressing the Finance Secretaries/Finance Commissioners of States and Union Territories  after inaugurating their  2nd Annual Conference, here today, Shri Mukherjee said that the recovery which spans all three sectors, viz., agriculture, industry and services is estimated at 8.8% in the first quarter of current financial year 2010-11.  Commending the efforts of Centre as well as the State Governments for providing necessary stimulus to the economy, he said that the recovery is in line with growth projection of 8.5 ± 0/25% in 2010-11.       

 

            Stating that inflation is a major area of concern, Shri Mukherjee said that the Government has taken a number of anti-inflationary measures to bring down the rate of inflation which has moderated to 8.6% in September, 2010 from the headline inflation of 11%  at the beginning of the current financial year.   He said that the Central Government has requested the States to strengthen their public distribution systems to ensure that the vulnerable groups of the society are not adversely affected by the current level of inflation.  The Minister asked State Finance Secretaries to take appropriate steps in this regard to bring down the inflation at more acceptable levels.

 

Shri Mukherjee said that for the years 2011-12 and 2012-13, we have projected fiscal deficits of the Centre to further reduce to 4.8% and 4.1% of GDP respectively. The debt stock of the Centre is also projected to come down to 48.2% of GDP by the end of 2012-13 as per the Medium Term Fiscal Policy Statement, 2010-11. This is in line with the recommendations of the 13th Finance Commission, he added.

 

Reiterating the commitment of the Central Government to its path of fiscal consolidation, he hoped that the States will also remain committed to their fiscal roadmap.  The Finance Minister said that the 13th Finance Commission has mandated that fiscal deficits of the states should come down gradually to 2.4% of GDP i.e. 3% of GSDP by the end of the award period.  He said the Commission has also projected that the debt stock of the States will consequently reduce to 24.3% of GDP. The Finance Minister hoped that the States will bring in necessary fiscal reforms to achieve these targets.

 

Shri Mukherjee said that the 13th Finance Commission has recommended grants-in-aid to States amounting to Rs. 3,18,581 crore over its award period.  He said that the Government of India has issued guidelines for most of these grants starting from current year and he would expect the States to be able to avail the grants in a timely manner and benefit from them.

 

The Finance Minister said that the Central Government has initiated a number of schemes/initiatives to facilitate (Public Private Partnerships) PPPs, which the State and local Governments can avail to scale up their engagements with PPPs. He expressed his happiness to observe that many State Governments have institutionalized various measures to encourage private sector engagement in creation of infrastructure and delivery of services.  He asked the States to increasingly utilize the Viability Gap Funding scheme, India Infrastructure Project Development Fund and the PPP pilot project initiative. There is also a pressing need to develop capacity within public functionaries in managing PPP projects, the Minister added.

 

 Shri Mukherjee said that in his budget speech for 2010-11, he had said that banking services will be provided to habitations having population in excess of 2000 by March 2012 through Business Correspondent and other models with appropriate technology backup.  He told that the State Level Bankers’ Committee (SLBCs) have identified 73,000 such villages and have prepared the Financial Inclusion Plans (FIPs).  Shri Mukherjee urged the States to support the FIPs, sensitise the District Collectors/District Magistrates and review the progress through the SLBC mechanism.  He requested the Sates to route all social security benefits through the banking system so that financial inclusion becomes viable and meaningful.

 

The Minister said that one of the crucial aspects of financial inclusion is providing banking services in unbanked blocks.  He said that at present, there are 88 unbanked blocks of which 80 are in North Eastern states, 4 in Jammu & Kashmir and 4 in Jharkhand.  He requested the State Governments to provide assistance in terms of necessary infrastructure, connectivity and security services. In North Eastern region, where, in some places, setting up of banks is found commercially unviable, RBI has formulated a scheme to provide financial assistance.   He asked the State Governments to make available necessary premises and other infrastructural support for this initiative.

 

            Following is the complete text of the speech of Union Finance Minister, Shri Pranab Mukherjee  delivered today on the occasion of inauguration of the 2nd Conference of Finance Secretaries/Finance Commissioners  of States and Union Territories:

 

 

“We had the last Conference of Finance Secretaries of States and Union Territories when we were still in the grip of financial crisis and economic slowdown. Today, when we meet, the economy is on the path of recovery and the growth in the first quarter is estimated at 8.8%. This has been due to the combined efforts of the Centre as well as the State Governments which have collectively provided necessary stimulus to the economy. The recovery is in line with grown projection of 8.5 ± 0.25% in 2010-11. Keeping in view the recovery which spans all three sectors, namely, agriculture, industry and services, it is reasonable to expect that the economy will go back to the robust growth path of around 9% average.

 

However, inflation is a major area of concern. The current financial year started with a headline inflation of 11%. The main drivers of this relatively high level of inflation were food prices. A number of anti-inflationary measures have been taken by the Central Government to bring down the rate of inflation. I am happy to note that inflation has somewhat moderated to reach 8.6% in September, 2010. The Central Government has requested the States to strengthen their public distribution systems to ensure that the vulnerable groups of the society are not adversely affected by the current level of inflation. I would like the State Finance Secretaries take appropriate steps in this regard. With these efforts, inflation should further go down to more acceptable levels.

 

Before the onset of the economic crisis, Centre and States were on a path of fiscal consolidation guided by their respective FRBM Acts. By the year 2007-08 fiscal deficit of the Centre had come down to 2.7% of GDP. Due to the economic crisis, Government had to resort to expansionary fiscal policy and consequently the fiscal deficit rose to 6.0% and 6.6% of GDP in 2008-09 and 2009-10. With the current recovery in sight we have returned to the path of fiscal consolidation. With a calibrated unwinding of transient expansionary fiscal policy, we expect to close the current year with a fiscal deficit not exceeding 5.5% of GDP as estimated in the Budget.

 

For the years 2011-12 and 2012-13, we have projected fiscal deficits of the Centre to further reduce to 4.8% and 4.1% of GDP respectively. The debt stock of the Centre is also projected to come down to 48.2% of GDP by the end of 2012-13 as per the Medium Term Fiscal Policy Statement, 2010-11. This is in line with the recommendations of the 13th Finance Commission.

 

While the Central Government is committed to its path of fiscal consolidation, I hope the States will also remain committed to their fiscal roadmap. The 13th Finance Commission has mandated that fiscal deficits of the states should come down gradually to 2.4% of GDP i.e. 3% of GSDP by the end of the award period. It has also projected that the debt stock of the states will consequently reduce to 24.3% of GDP. I hope the States will bring in necessary fiscal reforms to achieve these targets.

 

Today’s conference focuses on various important issues that relate to states and their finances. It covers issues ranging from grants-in-aid to States recommended by the 13th Finance Commission, management of cash balances of States, infrastructure financing, externally aided projects and financial inclusion.

 

The 13th Finance Commission has recommended grants-in-aid to States amounting to Rs. 3,18,581 crore over its award period. While some grants become applicable from the current year, many of them are recommended to start from the next financial year. Government of India has issued guidelines for most of these grants starting from current year and I would expect the States to be able to avail the grants in a timely manner and benefit from them.

 

In recent years we have seen that the States have been maintaining relatively high levels of cash balances in the form of treasury bills, which have sometimes exceeded ` 1 lakh crore. Although it may be desirable for States to maintain certain levels of cash balances, there is a cost associated with such high cash balances. There is, therefore, a need to visit this issue for better cash management.

 

As per the 11th Five Year Plan document, one fourth of the investment required during the plan period is expected to be met through private investments and public private partnerships (PPPs). PPPs offer a number of advantages in terms of leveraging public capital to attract private capital and undertake a larger number of infrastructure projects. They help in introducing private sector expertise and cost reduction technologies as well as bringing in efficiencies in operation and maintenance. The Central Government has initiated a number of schemes/initiatives to facilitate PPPs, which the state and local governments can avail to scale up their engagements with PPPs. I am happy to observe that many state governments have institutionalized various measures to encourage private sector engagement in creation of infrastructure and delivery of services. I would expect the States to increasingly utilize the Viability Gap Funding scheme, India Infrastructure Project Development Fund and the PPP pilot project initiative. There is also a pressing need to develop capacity within public functionaries in managing PPP projects.

 

External aid has always been an attractive source of financing projects which need long tenor loan at relatively lower interest rates. States have been using this source of financing extensively to implement various projects in social and infrastructure sectors. Certain implementional issues need to be focused at the State level to ensure that there are no additional costs due to factors like commitment charges. Tight monitoring and effective supervision is essential to ensure the same. The State level reviews by the Chief Secretaries and sector reviews by Secretaries of the Departments at the state level are extremely essential for speedy implementation.

 

In my budget speech for 2010-11, I had said that banking services will be provided to habitations having population in excess of 2000 by March 2012 through Business Correspondent and other models with appropriate technology backup. The State Level Bankers’ Committee (SLBCs) have identified 73,000 such villages and have prepared the Financial Inclusion Plans (FIPs). I would urge the States to support the FIPs, sensitise the District Collectors/District Magistrates and review the progress through the SLBC mechanism. States are also requested to route all social security benefits through the banking system so that financial inclusion becomes viable and meaningful.

 

One of the crucial aspects of financial inclusion is providing banking services in unbanked blocks. At present, there are 88 unbanked blocks of which 80 are in North Eastern states, 4 in Jammu & Kashmir and 4 in Jharkhand. State Governments are requested to provide assistance in terms of necessary infrastructure, connectivity and security services. In North Eastern region, where, in some places, setting up of banks is found commercially unviable, RBI has formulated a scheme to provide financial assistance. State Governments on their part are requested to make available necessary premises and other infrastructural support for this initiative.

 

I am sure today’s conference would be extremely useful and generate new thoughts and action plans. I wish the conference all success.”

 

 

 

DSM/BY/GN