Centre says won’t relent on deficit norms for states with populist schemes

Amid populist schemes that will dent the fiscal position of various Opposition-led state governments, the Centre has indicated that it will not budge on the present deficit norms, which govern aid to states.

Finance Ministry sources have told BT TV that states need to manage their fiscal situation. "It is not the Centre's problem. The states need to balance their budgets", an official said.

Recently, in Karnataka, the Congress had promised Rs 2,000 monthly assistance to women heads of all families, followed by 200 units of free power to all households, Rs 3,000 every month for graduate youth, Rs 1,500 for diploma holders, 10 kg of rice per person per month and free travel for women on state public transport buses.  

The total cost of the freebies will amount to Rs 65,000 crore a year for Karnataka, which is beyond the state's budget estimates of expenditure.  

Punjab's fiscal deficit, due to additional expenditure, is expected to cross 4 per cent, which is 50 basis points higher than the budgeted expenditure.

The Centre allows a state to borrow only 3 per cent of its gross state domestic product annually, and an additional 50 basis points more to meet certain reforms in the power distribution and public transport sectors.

Prime Minister Narendra Modi has warned against the freebie culture for seeking votes, terming it "very dangerous" for the country's development.

Another issue that could pressurise the state exchequer is the old pension scheme (OPS). Under this, retired government employees got 50 per cent of their last full salary as a monthly pension. The amount keeps rising with the hikes in the dearness allowance rates and is periodically revised by the pay commissions.

In January, the Reserve Bank of India cautioned against bringing back the OPS that was in place until 2004, stating that such a move would exacerbate the fiscal burden of the states in the coming years. Five states, namely Rajasthan, Chhattisgarh, Jharkhand, Punjab, and Himachal Pradesh, have informed the Centre about their decision to go back to the OPS.