?Civic bodies must fully exploit their resources?

THE PHENOMENON of fiscal federalism or inter-government economic relations is common to both federal and unitary governments, on account of vertical as well as horizontal imbalances relating to allocation of resources and functions to governing institutions at various levels.

THE PHENOMENON of fiscal federalism or inter-government economic relations is common to both federal and unitary governments, on account of vertical as well as horizontal imbalances relating to allocation of resources and functions to governing institutions at various levels.

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The political and economic factors behind the federal fiscal arrangements in the country have undergone transformation with globalisation. As a result, State Finance Commissions are faced with a challenge to evolve monetary reform programme to cover revenue deficit.

Third MP State Finance Commission Chairman Sheetala Sahay spoke to Padma Shastri on efforts needed to achieve this objective during his stay in the City on Thursday. Excerpts

Q. What according to you should be the ideal distribution between state and panchayats of the net proceeds of taxes, tolls, duties and fees?
All this comes at a later stage. First there is need to decide what kind of development do village panchayats want in the next five years and what kind of help or resources do they need.

I am visiting divisional headquarters to place this objective before officials and public representatives. Primarily, every village panchayat should have basic facilities like roads, panchayat and school building, safe drinking water, sewage disposal facility and individual toilets.

This will ascertain the annual expenditure of every village panchayat, then the sources of income can be tapped. Income can be generated from full recovery of taxes and by imposing taxes which State Government is empowered to but has not levied so far.

Q. Does that mean that earlier State Commissions have not made assessment of village panchayats and you have to start from scratch?

No comments on what earlier Commissions did. But there is no time bound programme. Moreover, the resource sharing with village panchayats has gained momentum with 74th amendment in the Constitution. So it’s comparatively a recent phenomenon.

What is to be kept in mind is that public needs have changed a lot in last one decade. This has brought a change in priorities. The priorities of village panchayats also differ. This has to be assessed.

Q. What measures are needed to augment Consolidated Fund of State to supplement the resources of municipal bodies?

It is too early to say. Till we don’t trace the potential of civic bodies, it will be difficult to say how to augment the Consolidated Fund. There is lot of work to be done by civic bodies and the resources are limited. It is, therefore, important for every local body to fully exploit its resources. This will take time. At present, state and central governments are lending financial support to them.

Q. The revenue deficit on non-plan expenditure is growing and the Centre sends non-plan grant to bridge this gap? What is the situation in Madhya Pradesh?

The situation has improved in last two years. The payments are no longer withheld after December due to overdraft. The deficit arises when you spend more than your capacity to provide facilities.

This is what has happened over the years. Unbridled deficit leads to bankruptcy and therefore there is need to borrow from Centre and State. The only solution is to generate resources and improve financial management.

Q. Union government has asked Finance Commission to draw monitorable fiscal reform programme to cover revenue deficit. What will be State Finance Commission’s contribution?

Central Finance Commission has a larger domain and is more resourceful. Our primary concern is to recommend judicious use of funds and how best can the resources be distributed so that there is uniformity in development of basic civic and infrastructure facilities. But yes, there is a plan to restructure government finances for restoring fiscal balance.

Q. What is your view on re-imposing octroi in the State?
No one has demanded it except Indore.