9th Five Year Plan (Vol-1)
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Public Sector Plan : Resources and Allocations
Introduction || Measure to Ensure Projected Resources for Central Plan || Annexures

Introduction

3.1 The Eighth Five Year Plan was formulated with an approved public sector outlay of Rs. 434,100 crore. The anticipated Eighth Plan expenditure is of the order of Rs. 391,000 crore. The lower plan expenditure was the result of the shortfall of about 10 per cent in the resource mobilisation undertaken during the plan period. The projected public sector plan outlay for the Ninth Plan, consistent with the accelerated GDP growth of 6.5 percent per annum envisaged, is placed at Rs.859200 crore at 1996-97 prices. This represents a step up of about 48 per cent and 33 per cent in real terms over the anticipated Eighth Plan expenditure and the approved Eighth Plan Outlay respectively.

3.2 This Chapter includes a review of performance in respect of resource mobilisation during the Eighth Plan in order to assess the prospects of resource mobilisation as per the scheme of financing envisaged for the Ninth Plan. The projected scheme of financing is discussed separately for the Centre (including U.Ts without Legislature) and States (including U.Ts with Legislature) followed by a discussion of measures considered necessary to achieve the estimated resources for financing the Ninth Plan.

Eighth Plan Performance

3.3 The projected financing pattern of the Eighth Plan Outlay of Rs.434,100 crore at 1991-92 prices consisted of budgetary support (43.4 per cent), Internal and Extra Budgetary Resources (IEBR) of the Central Public Sector Enterprises (CPSEs: 33.2 per cent), and own resources of States (23.4 per cent). This pattern of financing envisaged positive Balance from Current Revenues (BCR) for both the Centre and the States as well as positive contribution by State Level Public Sector Enterprises (SLPSEs). Keeping in view the expected positive BCR and the need to adhere to a non-inflationary scheme of plan financing, the share of borrowings as well as deficit financing in the aggregate resources of the Centre was kept at low levels. However, actual performance of both the Centre and the States revealed significant deviations from projected financing pattern. The areas of shortfalls and deviations are discussed below:

BCR of the Centre and the States

3.4 The Eighth Plan Chapter on Financial Resources did not refer to fiscal deficit specifically. However, the need for reducing the reliance on both borrowings and deficit financing was emphasised. Thus the estimates of financial resources for the Eighth Plan included positive BCR both at the Centre and the States. However, contrary to projections, the BCR of both the Centre and the States turned out to be negative during each of the five years of the Eighth Plan. Thus, the combined BCR of Centre and States turned out to be (-) Rs.39563 crore as against the positive BCR of Rs.35005 crore projected for the Eighth Plan. Annexure I to this Chapter provides the details.

3.5 The deterioration in the BCR of the Centre was mainly due to (i) decline in indirect tax revenue, and (ii) increased interest burden. The import duty rates were reduced considerably in order to enable Indian industry to reduce cost of production and face international competition. Thus, the customs revenue registered considerable decline from 3.4 per cent of GDP in 1992-93 to 2.7 per cent in 1993-94. The collection rate, i.e the ratio of realised import revenue to the value of imports, is estimated to have declined from 44 per cent in 1992-93 to 37 per cent in 1993-94 and further down to around 30 per cent by 1996-97. However, import growth coupled with depreciation of the rupee reversed this declining trend in revenue from customs which improved from the level of 2.7 per cent in 1993-94 to 3.5 per cent of GDP in 1996-97, which was only slightly higher than that prevailing in 1992-93. As regards Union excise revenue,the Eighth Plan period witnessed further switch from specific duties to advalorem duties aimed at ensuring buoyancy as measured by the ratio of change in tax revenue to change in GDP at current prices. The scheme of MODVAT was extended with a view to reducing industrial costs and prices by relieving tax on inputs. There was also reduction of rates in the items of mass consumption, white goods, automobiles and synthetic fibres. Exemptions from excise revenue to small scale sector continued. Such exemptions provide loopholes. The net effect of these measures was, a significant drop in excise revenue from 4.4 per cent of GDP in 1992-93 to 3.7 per cent in 1996-97. The main reason for this decline was the growing proportion of MODVAT credit which nearly doubled from about 22 per cent of gross excise revenue in the beginning of the Eighth Plan period to about 42 per cent by the end of the Plan period. Further increase in the ratio of MODVAT credit to gross excise revenue is not expected to be significant as the proportion of revenue from MODVAT to total Union Excise revenue has reached 85 per cent by the end of the Eighth Plan period. Indeed, the proportion of MODVAT credit can be brought down by plugging the loopholes.

3.6 As regards direct taxes, the focus of reforms was on rate reduction and simplification to facilitate better compliance. The reform measures resulted in some improvement. The ratio of direct tax revenue to GDP rose from 2.6 per cent in 1992-93 to 3.1 per cent in 1996-97. However, this improvement in direct tax revenue was not sufficient to compensate for the decline in indirect tax revenue mentioned above.

3.7 Many items of Non Plan Revenue Expenditure (NPRE) showed declining trend in terms of their proportion to the total NPRE, during the Eighth Plan period. The percentage of subsidies to NPRE came down from 18.2 per cent to 13.2 per cent. However, the proportion of interest payments increased from 39.6 per cent to 46.2 per cent, mainly due to the rise in Government borrowing at market related interest rates.

3.8 Balance from current revenues of the States had also declined sharply from Rs. 12985 crore to (-) Rs. 2009 crore in the Eighth Plan. This was mainly on account of substantial shortfall in States’ Own Tax revenues. The realisation in revenue collection was around 85 per cent of the projected level. In absolute terms, the revenue collection was less by Rs. 30,000 crore compared to the estimates of Eighth Plan. Further, the interest burden also increased from Rs. 10944 crore in 1991-92 to Rs. 26298 crore in 1996-97 (BE) i.e. at an annual compound rate of growth of 19.16 per cent, even though the amount of loans received by the States was only of the order of 89 per cent of the projected level in the Eighth Plan. Rapid growth of interest liability was due to higher interest rates. The interest rate on loans against the small savings varied between 14.5 per cent and 15 per cent during the Eighth Plan period as against 12 per cent to 13 per cent in the Seventh Plan period. Similarly, interest rates on plan and non-plan loans rose to 12 and 13 per cent as against 8 to 9 per cent in the Seventh Plan period. Interest on SLR based market borrowings rose by 2 percentage points in the Eighth Plan period over the Seventh Plan period. This increased burden on account of higher rates of interest exacerbated the deterioration of BCR.

The Eighth Plan – Review of Plan Expenditure and Resource Mobilisation

  • The plan expenditure incurred during the Eighth Plan is estimated to be 90 per cent of the total public sector outlay of Rs.4,34,100 crore projected for the five years – 1992-97 at 1991-92 prices.
  • Contrary to projections, the Balance from Current Revenues (BCR) of both the Centre and the States turned out to be negative during each of the five years of the Eighth Plan.
  • Reduction in import duty rates as well as in excise duty rates for items of mass consumption, white goods, automobiles and fibres coupled with loopholes in the exemptions provided to small scale sector resulted in lower revenue realisation.
  • Excise revenue dropped from 4.4. per cent of GDP in 1992-93 to 3.7 per cent in 1996-97.
  • Improvement in direct tax revenue from 2.6 per cent to 3.1 per cent of GDP during the Plan period consequent on direct tax reform, howev er, only partly compensated the decline in indirect tax revenue.
  • Non-plan revenue expenditure including subsidies showed declining trend.
  • Market related interest rates on Government borrowings, increased interest liability.
  • There was substantial shortfall in States’ Own Tax Revenue also.
  • The interest burden of the States increased at an annual compound rate of growth of 19.16 per cent.
  • The resource mobilisation by the Central Public Sector Enterprises (CPSEs) was about 90 per cent of the Plan projections in real terms.
  • Failure to undertake price revisions commensurate with the increase in input costs resulted in poor financial performance of the Undertakings.
  • Adverse money/capital market conditions affected borrowings of the Enterprises.
  • The financial performance of the State Level Public Sector Enterprises (SLPSEs), especially, the State Electricity Boards (SEBs) has been more discouraging. Only three of the SEBs could earn positive rate of return on investment against the statutory obligation for a three per cent rate of return.
  • The Centre’s dependence on borrowings for financing the Plan increased by 40 per cent over the projections. However, in the case of States, borrowings fell short by 12 per cent.
  • The flow of external grant registered only a modest increase whereas there was steep errosion in the net external borrowings mainly on account of increase in the proportion of repayments out of gross borrowings.
  • The deficit financing increased by about 65 per cent vis--vis the projection of Rs.20,000 crore for the Plan period.

Resources of Public Sector Enterprises

3.9 Internal and Extra Budgetary Resources (IEBR) of CPSEs were projected at Rs. 1,44,140 crore at 1991-92 prices (Annexure 1). The Actuals for 1992-96 and the Revised Estimates for 1996-97 in respect of generation/mobilisation of IEBR by CPSEs work out to Rs.1,30,324 crore, which is less by Rs.13,816 crore or about 9.6 per cent vis--vis the projected estimates. The actual mobilisation of resources by the CPSEs during the first four years of the Eighth Plan has been less compared to the corresponding revised estimates. On this analogy, the actual mobilisation in the fifth year viz., 1996-97 may also be taken to be less than the revised estimates. Keeping this in view, the shortfall in IEBR during the five year period may be placed around 10 per cent of the projected amount.

3.10 The CPSEs could not mobilise funds from the market through bonds to the expected level. The adverse money/ capital market conditions and some inherent weaknesses of PSUs were responsible for this shortfall. The failure to undertake necessary price revision to meet the rising input costs resulted in poor financial performance of most of the undertakings. Hence, they could not compete successfully with the private corporate sector for funds in the market. Even the CPSEs which were allowed access to tax-free bonds found it difficult to raise funds from this measure as per target in some of the years because of high market rates of interest. Besides, the allocation of tax-free bonds was restricted even for the CPSEs which were otherwise capable of raising funds through bonds. This was in line with the Government decision to phase out the instrument of tax free bonds. During 1992-93 the amount raised through bonds constituted only around 18 per cent of the target. Though this proportion rose to about 81 per cent in 1993-94, it declined to 41 per cent and 27 per cent in 1994-95 and 1995-96 respectively. The corresponding proportion is estimated to have risen only marginally over the previous year to reach 33 per cent in 1996-97.

3.11 In the case of States, the projected internal resources of State Level Public Sector Enterprises (SLPEs) amounted to Rs. 4000 crore. However, actual generation of resources by SLPEs turned out to be negative, i.e (-)Rs. 2723 crore which implied a deterioration of Rs. 6723 crore compared to the projection. This was the result of their poor financial performance, especially of State Electricity Boards (SEBs). The rate of return on investment in State Power Sector continued to be negative throughout the Eighth Plan as against the statutory obligation to achieve a rate of return of 3 per cent. Though there is scope for efficiency gain, the root cause of poor financial performance lies in low tariff which needs to be revised upwards to enable the SEBs to reduce commercial losses.

Borrowings

3.12 The deterioration in BCR necessitated greater dependence on borrowings for plan financing. As per the Eighth Plan projections, Centre’s borrowings, including Miscellaneous Capital Receipts (MCR), was expected to be Rs. 23551 crore per year whereas the amount borrowed during the Eighth Plan averaged Rs. 33030 crore per annum, which meant an increase of about 40 per cent in the dependence on borrowings vis-a-vis projections. In the case of States, the borrowings including MCR, fell short of projections by around 12 per cent. Taking both Centre and States together, borrowings for financing the Eighth Plan exceeded the projection by about 19 per cent.

Net Inflow of Resources from Abroad

3.13 Net inflow of budgetary resources from abroad in the form of external loans and grants amounted to Rs. 19,234 crore as against a projected amount of Rs. 28,700 crore. The proportion of repayments which constituted about 45 per cent of the gross external borrowings in the initial year, increased to about 73 per cent by the terminal year of the Eighth Plan. In nominal terms, the repayments increased from Rs. 4306 crore to Rs. 6969 crore whereas the net external borrowings declined from Rs. 5319 crore to Rs. 2589 crore during the Plan period. Rupee depreciation during this period also contributed to the steep decline. The flow of grants registered only a modest increase from Rs. 919 crore to Rs. 1199 crore during this period. Hence the erosion experienced in net external borrowings could not be made good by the small increase in the external grants.

Deficit Financing

3.14 As in the case of borrowings, reliance on deficit financing also exceeded the projections due to the resource gap arising mainly from negative BCR. Besides, minimum budgetary support had to be provided through non plan loans to certain public enterprises to meet cash losses and working expenses. As a result, the recourse to deficit financing in the Eighth Plan was to the extent of Rs. 33,037 crore as against a projection of Rs. 20,000 crore. This meant an increase of about 65 per cent vis-a- vis the projection.

Resource Assessment for the Ninth Plan - The Profile

3.15 The overall resources for Plan consist of (i) Budgetary Resources of the Centre, including Central Assistance for States and U.Ts., (ii) Internal and Extra Budgetary Resources (IEBR) of the Central Public Sector Enterprises (CPSEs), and (iii) Own Resources of States and U.Ts with Legislature. The size of projected budgetary resources for the Plan depends on the excess of the aggregate projected sum of receipts comprising (a) Balance from Current Revenues, (b) borrowings and other liabilities, (c) other capital receipts (including recovery of loans and advances and disinvestment), and (d) external grants, over nonplan capital expenditure. The IEBR of CPSEs consists of internal and extra budgetary resources. The retained profits and depreciation provision constitute internal resources (IR). The extra budgetary resources include borrowing both at home and abroad, and other resource items like intercorporate transfers, public deposits, external aid received directly from the donors, equity capital raised from the market etc. A part of the aggregate resources of the Centre flows as Central Assistance to the States and the U.Ts. As regards States’ own resources, the magnitude depends on BCR, contribution of State Level Public Enterprises, especially SEBs and SRTCs, and borrowings. The Central Assistance mentioned above supplements the States’ own resources.

Resources of the Centre

3.16 Resources of the Centre consist of both budgetary resources including external assistance routed through the budget and the Internal and Extra Budgetary Resources (IEBR) of Central Public Sector Enterprises (CPSEs). The quantum of budgetary resources of the Centre which is available for providing overall budgetary support to the plan is divided into two parts viz. budgetary support for Central Plan (including U.Ts without Legislature) and Central Assistance for States’ Plans (including U.Ts with Legislature). A part of the budgetary resources allocated as budgetary support for the Central Plan is used for providing necessary support to CPSEs. Such budget support to the enterprises has declined significantly from around 50 per cent in mid eighties to below 15 per cent during the Eighth Plan. This necessitated greater dependence of CPSEs on IEBR for financing their plan outlay. As per revised estimates, the proportion of IEBR in the plan outlay of CPSEs ranged from 85 to 90 per cent during the Eighth Plan period. CPSEs in sectors like Petroleum and Telecom depend entirely on IEBR for financing their plan outlay. The provision of budgetary support is limited to (a) CPSEs in the infrastructure sector and (b) loss making CPSEs most of which belong to industry groups like pharmaceuticals, fertilisers, textiles and heavy engineering.

3.17 In the month of April, 1998 the Prime Minister indicated Special Action Plans (SAPs) with the objective of (a) doubling the food production in ten years; (b) expansion and improvement of social infrastructure; (c) expansion and improvement of physical infrastructure and financial services; (d) unveiling a National Water Policy and (e) making India a global information technology power. The Planning Commission was requested to evolve appropriate action plans for achieving the said goals in consultation with the Administrative Ministries concerned and the Finance Ministry. Accordingly, the Commission formulated Special Action Plans in these areas. These were dovetailed with the normal sectoral plans. The additional financial resources specifically required in respect of the SAPs during the Ninth Plan period were estimated to be of the order of Rs.21,950 crore. The aggregate budgetary support of the Centre to the Plan including the provisions to SAPs is placed at Rs. 374,000 crore.

3.18 Table 3.1 presents the relevant details on the availability of Budgetary Resources for financing the Ninth Plan.

Table - 3.1 : Budgetary Resources for the Ninth Plan (1997-2002)
                               (Rs.in crore at 1996-97 prices)
----------------------------------------------------------
Resource Item                                    Amount   
---------------------------------------------------------
 1. BCR                                         (-)2778   
 2. Loan recovery                                 43327
 3. Borrowings and 
    other liabilities                             391592   
 4. External Grants                               10062
 5. Disinvestment	                          23895	
 6. Aggregate Budgetary                                       
    Resources of Centre (1 to 5)                  466098 
 7. Non-Plan Capital Expenditure                  92098  
 8. Centre's Aggregate Budgetary Resources 
    for Plan (6 - 7)                              374000 
------------------------------------------------------------------------------------------------------------------

3.19 The magnitude of Centre’s aggregate budgetary resources for Plan amounting to Rs. 374,000 crore, as indicated above, is in conformity with the terminal year fiscal deficit of 4.1 per cent of GDP. The projection of BCR shown in table 3.1 given above, is based on tax revenue projections which range from 10.15 per cent of GDP in 1997-98 to 11.5 per cent in 2001-02. The non-tax revenue projected for the Ninth Plan remains at 2.8 per cent of GDP during the plan period. As regards non-plan revenue expenditure (NPRE), the projections take account of the interest liability based on the composition of short-term, medium and long-term loans as well as the monetisation of part of the fiscal deficit. On the average, the rate of interest on borrowings and other liabilities included in the fiscal deficit is estimated at 9.5 per cent. The decline in fiscal deficit from 6.1 per cent of GDP in 1997-98 to 4.1 per cent in 2001-02, has also been considered in projecting the interest liability. The NPRE projected for the Ninth Plan, therefore, shows a decline from 11.05 per cent of GDP in 1997-98 to 9.59 per cent in 2001-02. As regards the capital receipts, loan recoveries were projected to register a negligible growth of about 0.5 per cent at current prices during each year of the Ninth Plan. As regards borrowings and other liabilities, the projections correspond to the targeted level of fiscal deficit in terms of percentage to GDP. Following the Government decision to avoid automatic monetisation of budget deficit through the issue of ad-hoc treasury bills, explicit deficit financing has been kept at zero level.

3.20 The Central Government had taken certain measures to meet the impact of the Fifth Pay Commission’s recommendations in 1997-98.The annual average burden on this account is expected to be less onerous in the later years of the Plan. The liability in this regard during the remainder of the Plan period has been accordingly included in the projections of NPRE.

3.21 The aggregate budgetary support of Rs. 374,000 crore for the Ninth Plan is largely predicated upon a strict fiscal discipline calling for containment of non-plan revenue expenditure and raising the tax-GDP ratio to 11.5 per cent by the end of the Plan. While the former is implicit in the fiscal deficit profile indicated in paragraph 3.19, the latter is mainly a function of tax buoyancy, which consists of the increase in tax revenue arising from both built-in flexibility of and discretionary changes in the tax system. There is considerable scope for raising tax revenue through strict enforcement and expansion of the coverage of Tax Deducted at Source (TDS), as was evident during the post reform period when revenue from corporate income tax as well as personal income tax increased from one per cent of GDP each in 1990-91 to 1.5 per cent and 1.4 per cent of GDP respectively in 1995-96. It is important to recall that the tax-GDP ratio was as high as 11.3 per cent in 1989-90. It declined to 10.8 per cent in 1990-91. Between 1990-91 and 1994-95 it further declined by one percentage point to 9.8 per cent. This decline in the tax-GDP ratio in the first four years of the economic reforms stand in sharp contrast to the increase of 2 to 4 percentage points experienced by some of the developing countries in the wake of their economic reforms. In 1996-97 there has been some improvement, the ratio reaching 10.5 per cent. Considering that Centre’s tax- GDP ratio had reached 11.3 per cent in 1989-90 and taking into account the expected impact of discretionary measures referred to above on tax buoyancy, the average tax-GDP ratio projected at 10.67 per cent for the Ninth Plan period is well below the level achieved in 1989-90.

3.22 There is considerable potential for mobilising additional resources from direct and indirect taxes through widening of the base, reducing exemptions to the bare minimum and improving the tax administration including stricter enforcement. Measures necessary to exploit the potential are detailed in paras 3.45 to 3.48. In view of this, the projections of tax- GDP ratio mentioned above should be taken as minimal levels that must be achieved rather than as limits of maximal effort.

IEBR of CPSEs

3.23 The significant reduction in budgetary support to CPSEs from around 50 per cent of their plan outlay in 1985-86 to about 10 per cent in 1996-97 has made it necessary for them to generate/ mobilise more IEBR for financing their plan outlay. Nearly 90 per cent of the plan outlay of CPSEs is financed through the IEBR generated/ mobilised by them. The IEBR projected for the Ninth Plan amounts to Rs.290,094 crore at 1996-97 prices; an increase of about 25.6 per cent in real terms over the Eighth Plan estimates. This has been estimated on the basis of projected savings of CPSEs and their anticipated borrowings. The projection of IEBR is consistent with the overall public sector outlay of Rs. 859,200 crore envisaged for the Ninth Plan.

Financial Resources for the Ninth Plan – A Profile

  • The Ninth Plan (1997-2002) envisages GDP growth rate of 6.5 per cent per annum. The Public Sector Plan Outlay is placed at Rs.8,59,200 crore at 1996-97 prices, representing a step up of 48 per cent and 33 per cent in real terms over the anticipated Plan expenditure and the approved Plan outlay respectively of the Eighth Plan. The share of the Centre’s Plan and that of the States, including U.Ts, would be 57 per cent and 43 per cent respectively.
  • The Centre’s Plan Outlay of Rs.4,89,361 crore is to be financed to the extent of 44 per cent and 56 per cent by way of Gross Budget Support (GBS) and Internal and Extra Budgetary Resoaurces (IEBR) of the CPSEs respectively.
  • The Balance from Current Revenues (BCR) is anticipated to be negative as against positive BCR projected for the Eighth Plan.
  • The tax revenues are estimated to range from 10.15 per cent to 11.5 per cent of GDP giving an average Tax-GDP ratio of 10.67 per cent during the Plan period.
  • Non-tax Revenue will continue to remain at 2.8 per cent of GDP.
  • The Non-Plan Revenue Expenditure (NPRE) is projected to decline from 10.05 per cent of GDP in 1997-98 to 9.5 per cent in 2001-02.
  • Borrowings are likely to contribute 60 per cent of the financial resources for the Centre’s Plan.
  • The CPSEs are expected to finance 90 per cent of their Plan Outlay through IEBR.
  • The fiscal deficit is expected to decline from 6.1 per cent to 4.1 per cent of GDP during the Plan period.
  • Borrowing by States will constitute 47 per cent of their Ninth Plan Outlay as in the projections for the Eighth Plan.
  • The Internal Resources of the State Level Enterprises are also expected to be higher at 4 per cent of the Plan Outlay as against 2 per cent projected for the Eighth Plan.
  • The States’ BCR (including Additional Resource Mobilisation – ARM commitment) will improve to become positive during the Ninth Plan.

3.24 The financial sector reforms have enabled the corporate sector including CPSEs to raise resources from the market both at home and abroad. Howsever, the public sector enterprises have to compete with their private sector counterparts for raising resources. This necessitates more autonomy for CPSEs to enable them to improve their financial performance. CPSEs are required to maximise generation of IR during the Ninth Plan period. Efficiency gains through higher productivity alone cannot achieve this. It is necessary to facilitate periodic price revision to meet the rising input costs. With improvement in operational efficiency and adoption of suitable pricing policies, it is expected that the CPSEs would be able to raise the projected level of IEBR during the Ninth Plan.

Financing Pattern of Central Plan Outlay

3.25 The financing pattern of the Central Plan Outlay inclusive of IEBR of CPSEs is given in Table 3.2.

                                       Table 3.2 Financing Pattern of Central Plan Outlay  
                                                       (including U.Ts without Legislature)
-------------------------------------------------------------
Resource                             Amount       percentage
                                  (Rs.in crore    share in   
                                   at 1996-97     aggregate 
                                   prices)        resources 
-------------------------------------------------------------
1. BCR                               (-)2778     (-)0.4   
2. IEBR of CPSEs                      290094	    43.7 
3. Borrowings and other liabilities   391592        59.0
4. Misc. Capital Receipts(net)     (-) 24876     ( -)3.7   
5. External Grants                     10062         1.5 
6. Deficit Financing                       0         0.0 
7. Aggregate Resources(1 to 6)        664094       100.0
8. Assistance for State Plans      (-)171873     (-)25.9
9. Resources for Central Plan *       492221        74.1    
   
   *includes UTs without Legislature
-------------------------------------------------------------
Notes: 1.Borrowings and other liabilities include External Borrowing of Rs.49956 crore.
2.Misc.Capital Receipts(net) consist of the difference between non-debt Capital Receipts and Non-Plan Capital Expenditure.
3.Resources for Central Plan include an amount of Rs.2860 crore as Central Assistance for UTs without Legislature.

3.26 It will be seen that the financing pattern for the Ninth Plan is markedly different from the earlier pattern in as much as deficit financing has been kept at zero level and balance from current revenues has turned negative. This has necessitated considerably higher percentage of borrowings and other liabilities.

3.27 The Gross Budgetary Support to the Central Plan for the first two years of the Ninth Plan (1997-98 – Revised Estimates and Budget Estimates for 1998-99 ) accounted for only about 15.4 per cent and 17.1 per cent respectively of the total such support for Ninth Plan. Consequently, the budgetary support for the remaining three years will have to be considerably enhanced so as to achieve the projected Central Plan Outlay for the Ninth Plan. This calls for stepping up of the resource mobilisation efforts on the lines indicated in paras 3.45 to 3.48. As regards IEBR also, the Revised Estimates for 1997-98 and Budget Estimates for 1998-99 work out to about 15.6 per cent and 19.2 per cent respectively of the total for the Plan period. Therefore, in order to finance the projected plan outlays, the CPSEs will be required to raise higher levels of IEBR in the remaining years. Annexure II shows budgetary support, IEBR and plan outlay of Central Ministries/ Departments for the Ninth Plan.

The financing pattern of the Centre and States and the gross budgetary support to the Plan are based on the recommendations of the Tenth Finance Commission. In the computation of States Own Resources and the BCR of the Centre, it has been assumed that 29 per cent of Centre’s gross tax revenue will be devolved to the States after passing the requisite Constitution Amendment Bill. However, the Tenth Finance Commission award will be valid only until 1999-2000. The resource position may be significantly altered depending upon the recommendations of the Eleventh Finance Commission.

Resources of States

3.28 The resources of the States for their Plans consist of States’ Own Resources (SOR) and Central Assistance (CA). The SOR includes balance from current revenues (BCR) of the States, internal resources of their enterprises, mainly of the State Electricity Boards and State Road Transport Corporations, devolution of grants through Tenth Finance Commission for capital works, borrowings by State Governments and their enterprises and miscellaneous capital receipts (MCR). The Central assistance includes domestic budgetary assistance as well as assistance for externally aided projects.

3.29 As mentioned earlier (paras 3.4 to 3.8), resource mobilisation during the Eighth Plan fell short of projection. Table 3.3 shows that the total resource mobilisation for financing the Eighth Plan of States constituted only about 81 per cent of the projected amount.

Table 3.3 : PROJECTED VIS-A-VIS REALISED FINANCING PATTERN OF
                             ( Rs. crore at 1991-92 prices)
--------------------------------------------------------------
                                   Projection     Realisation
--------------------------------------------------------------
     I.  States Own Resources          101485         70335
     (i) Balance from current revenues  12985       (-)2009
         including additional resource 
         mobilisation
     (ii)Contribution of Public   
         enterprises                    4000       (-) 2723
     (iii)Borrowings                   84500          75067
     II. Central Assistance for 
         States Plan including
         Area Programmes of 
         Rs. 4500 crore                78500          75750 
     III. Total Resources for the
          States Plan ( I+II)         179985         146085*
 -------------------------------------------------------------
 *Based on actuals for 1992-95 and anticipated for 1995-97.  

3.30 The main shortfall was in respect of BCR and contribution of the public enterprises. As against the total amount estimated at about Rs. 17000 crore from these two sources, the realisation would be around (-) Rs. 4730 crore leading to a deterioration of about Rs. 21700 crore. There was also substantial shortfall in the assistance for Externally Aided Projects of the order of Rs. 5400 crore. The entire SOR of States at the aggregate level accrued from borrowed funds, some part of which was utilised to meet non-plan revenue expenditure and negative contribution of their enterprises. The amount borrowed by the States for financing their Eighth Plan did not exceed the projection. However, these borrowings were at higher rates of interest. Further these were largely utilised to finance social sector outlays where there are no direct and immediate financial returns. Even where such funds are invested in productive sectors like power, irrigation and transport, the financial returns are extremely poor. All this has resulted in compounding the debt servicing problem of the States, the effect of which will be more evident in the coming years. Were the projected levels of borrowings to be reached, the plan outlay would have been higher. However, this would have exacerbated the debt burden.

3.31 The shortfall in resource mobilisation indicated above reinforces the conclusion that States will have to take concrete steps to improve their balances from current revenues and generation of internal resources of their enterprises. Improvement in BCR also presupposes compression of non-plan revenue expenditure.

Resource Assessment for the Ninth Plan

3.32 The estimates of financial resources for the Ninth Plan were firmed up during the discussion between Deputy Chairman and the Chief Minister. The final position that emerged is presented in Table 3.4.

      Table 3.4 : Resources for States' Plan (1997-2002)
                       (Rs.crore at 1996-97 prices)
-----------------------------------------------------------------
                               Ninth   Plan      Eighth   Plan
Item                          Amount   per cent  Projec-  Reali-
                                       Share     tion     sation
-----------------------------------------------------------------
           
1. BCR (including ARM             
   commitment)                  1372    0.39      7.22 ( -) 1.36
2. Internal Resources 
   of State Enterprises 
   (including ARM 
    commitment)                 14890   4.25      2.22 ( -) 1.86 
3. Borrowings                  164724  47.05     46.95     51.37  
4. Total SOR (1 to 3)          180986  51.69     56.39     48.15
5. Central Assistance          169152  48.31     43.61     51.85
6. Total Resources (4 + 5)     350138 100.00    100.00    100.00
-----------------------------------------------------------------
Note: 1. Chief Ministers committed for ARM of the order of Rs. 40611 crore; 2/3 of ARM has been taken under BCR and 1/3 under PSEs.
2. BCR also includes Rs.405 crore of Opening Balance and Rs. 9418 crore of Grants from Finance Commission.

3.33 The BCR estimate of the Eighth Plan projections was too optimistic accounting for 7.22 per cent of total resources. In reality, however, the BCR turned out to be significantly lower reducing its share to (-) 1.36 per cent. Keeping this in view and the likely additional liability on account of pay revisions, the Ninth Plan projection of BCR including the budgetary ARM has been kept at a modest level accounting for 0.39 per cent of the total resources. The Eighth Plan projection estimated the share of contributions by State enterprises at 2.22 per cent of the total. In fact, it turned out to be (-) 1.86 per cent. For the Ninth Plan, the share of contribution of State Enterprises including ARM is estimated at 4.25 per cent of the total. This implies a thorough re-organisation and revamping of the structure and functioning of the SEBs and SRTCs. In the projection for Eighth Plan the share of borrowing was a little less than 47 per cent. While the actual amount of borrowing fell short of projections its share in the total resources as realised was much higher at, 51.37 per cent. This was mainly because the performance in respect of BCR and contributions of PSEs was far lower than the projections. The share of borrowing in the total resources in the Ninth Plan is kept slightly below the level experienced in the VIII Plan . The share of Central Assistance in the States’ Eighth Plan projection was about 44 per cent. The share of Central Assistance for States in the Ninth Plan is kept slightly higher than the projected level in the Eighth Plan.

3.34 As has been observed earlier, the scheme of financing of Ninth Plan of the States visualises substantial efforts for mobilisation of additional resources through budgetary measures as well as through measures to be taken by State enterprises. The States have to take a number of steps to improve their tax GDP ratio. These include tax reforms, focussing on rationalisation of tax structure, specially the Sales Tax. The introduction of prohibition in some States had a softening impact on raising resources. This needs to be made up through compensatory measures in the other elements of tax structure and improvement in tax administration. Equally important is the need for empowering the States to tax services sector, to impose consignment tax and also to revise royalty rates for major minerals as per the recommendations of the Sarkaria Commission.

3.35 The SEBs are statutorily required to realise 3 per cent return on net fixed assets. In the Eighth Plan the average realisation of all SEBs was of the order of (-) 9.5 per cent. Out of 19 Boards, 15 had negative returns and 4 had positive returns of which only 2 had rate of return of above 3 per cent. The main reason for their extremely poor performance has been their inability to rationalise tariff structure to recover at least the cost of supply. The operational inefficiency and transmission and distribution losses are the other reasons. It is expected that concerted efforts will be made to restructure the SEBs, revise the tariff and improve their operational efficiency during the Ninth Plan period.

3.36 The functioning of the SRTCs need to be substantially improved. The fare structure should be revised periodically to yield reasonable returns. These Corporations have a number of social obligations to meet. It will be necessary to ensure that the Corporations continue to have remunerative routes so that they can cross subsidise the social obligations.

3.37 At the time of discussions with State Chief Ministers to finalise the resources for the State Plans, it had been estimated that the additional liability for pay revisions would be of the order of Rs.60,000 crore. However, the latest estimates indicated by the States place this burden at around Rs.11,0000 crore. The extra burden is unlikely to be met entirely by ARM. It is likely that the BCR of the States will not improve to the extend desirable and continuing reliance will have to be placed on market borrowings. It is, therefore, assumed that the share of market borrowings in the scheme of financing of the States’ plans will continue at the level experienced during the VIIIth Plan.

3.38 Sufficient attention has not been paid to realisation of non-tax revenues by the States. The areas from where the non- tax revenues can be augmented are irrigation charges, royalties on minor minerals and revision of user charges on services rendered by the Government. There is an urgent need for more frequent revisions of water rates and effective water rate administration atleast to meet the full O and M expenditure of the irrigation department.

3.39 The Central Assistance to the States’ Plan is projected at Rs. 169152 crore comprising of Rs. 129152 crore of domestic budgetary support and Rs. 40000 crore of assistance for externally aided projects (EAPs). The Central Assistance to the States in 1997-98 amounted to Rs. 24192 crore at 1996-97 prices. This works out to only about 15 per cent of the Ninth Plan. It follows that the Central Assistance has to be substantially stepped up in the remaining years of the Ninth Plan.

3.40 Some of the measures to improve the State finances like alternative scheme of devolution recommended by the Tenth Finance Commission, revision of royalty rates, introduction of consignment tax, delegation of powers to the States to tax service sector, setting up of Tariff Regulatory Commissions for power sector etc. require the support from the Centre. The measures to be taken by the Centre to supplement the resources of the States are mentioned in detail in the section on measures to be adopted by the Centre to improve the resources of the States.

Union Territories

3.41 The outlay for Union Territories during Eighth Five Year Plan was projected at Rs.6250 crore. The anticipated expenditure amounts to Rs.6530 crore indicating a performance level of 104.5 per cent.

3.42 The resources of the UTs without legislature are equal to the Central Assistance. In the case of other two UTs with legislatures, there is the additional element of their own resources. Table 3.5 shows the resource position of UTs for the Ninth Plan.

             Table 3.5 :Resources  of Union Territories 
                                              (Rs. crore)
---------------------------------------------------------------
       UTs.          SOR            Central             Total
                                   Assistance                  
---------------------------------------------------------------
  A. U.Ts with Legislature:
   
       i) Delhi      13548.28      1993.00            15541.28 
     
   B. U.Ts without
         Legislature   -           2860.00             2860.00 
---------------------------------------------------------------
                     14120.35      5580.93            19701.28 
---------------------------------------------------------------

Overall Financing Pattern

3.43 The aggregate public sector resources for the Ninth Plan work out to Rs.859200 crore. This comprises of Centre’s resources of Rs.664094 crore including Central Assistance to States and UTs (vide item No.8 of Table 3.2), States’ own resources of Rs.180986 crore (vide item No.4 of Table 3.4) and U.Ts own resources of Rs.14120 crore (vide Table 3.5).

3.44 The Table 3.6 presents the scheme of financing the plan outlays of Centre, the States and the U.Ts.

Table 3.6 : Overall Financing Pattern of the Public
            Sector Outlay during the Ninth Plan
                                 (Rs.in crore at 1996-97 prices) 
----------------------------------------------------------------
    Resource             Centre (including  States  and    Total
                         U.Ts without       U.Ts with
                         Legislature)       Legislature
----------------------------------------------------------------
1. BCR                          (-)2778       1372         (-)1406 
2. Resources of PSEs             290094      55030*         345124
3. Borrowings (incl.net
   MCR  and  Other
   liabilities)                 316760       138704         455464
4. Net Inflow from       
   abroad**                      60018            0         60018 
5. Aggregate Resources
   (1 to 4)                     664094       195106         859200
6. Assistance for Plans 
   of States and U.Ts with
   Legislature               (-)171873       171873             0 
7. Resources for 
   Public Sector Plan(5+6)      492221       366979         859200
-----------------------------------------------------------------
* For States and U.Ts: Resources of PSEs are inclusive of 3/4th of total LIC/ GIC loans, and the full amount of loan from REC, IDBI and "Others" under negotiated loans; Bonds and Debentures are also included under this item. Accordingly, item 3 i.e Borrowings of States/ U.Ts is exclusive of the items which are already included in item 2 i.e Resources of PSEs.
** Consists of External Loans amounting to Rs.49956 crore and External Grants of Rs.10062 crore.
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