Faced with an additional liability of Rs 24,000 crore (Rs 240 billion) due to the recommendations of the 12th Finance Commission, the government is expected to give lower Plan support for Central schemes operated in the states.

The additional liability and the commitments under the Fiscal Responsibility and Budget Management Act are delaying a decision on the Gross Budgetary Support for 2005-06, which is traditionally finalised by December.

Senior officials involved with the process told Business Standard that the government was tied by the commitment to reduce fiscal deficit to 4.1 per cent of the gross domestic product during the next fiscal but faced a possible additional outgo of Rs 44,000 crore (Rs 440 billion), of which Rs 20,000 crore (rs 200 billion) was required for National Common Minimum Programme commitments and the rest to implement the TFC recommendations.

The Planning Commission had sought a GBS of Rs 1,95,000 crore (Rs 1950 billion) for 2005-06, of which Rs 39,500 crore (Rs 395 billion) was required for the NCMP-related schemes.

The government has already committed to increasing the expenditure on schemes like the Sarva Shiksha Abhiyan, the mid-day meal scheme and the national food-for-work programme, which would mean an additional expenditure of about Rs 20,000 crore, said officials.

"The simplest option is to give additional resources to the states in line with the Finance Commission's recommendations and reduce their Plan allocation. This would, however, leave the financial position of the states unchanged though the objective of the Finance Commission is to make the states better-off," said an official.

Based on the TFC's recommendations, the Centre faces an additional outgo of about Rs 3,000 crore (Rs 30 billion) due to higher devolution and around Rs 9,500 crore (Rs 95 billion) on account of a reduction in interest rate by 4 per cent to 7.5 per cent. Changes in the debt repayment terms and grants to states is expected to result in an additional flow of over Rs 10,000 crore (Rs 100 billion) to the states.

The Centre is also expected to spend around Rs 8,000 crore (Rs 80 billion) on the food-for-work programme in the 150 most backward districts during 2005-06 as against the allocation of Rs 2,020 crore (Rs 20.2 billion) for this fiscal.