CII alarmed over huge fiscal deficit of states

The Confederation of Indian Industry has expressed deep concern over the alarming growth of the fiscal deficit among the states.

CII president Ashok Soota told the media in Bangalore on Friday that profligacy of many states as well as the Centre had resulted in the combined fiscal deficit being more than what it was over a decade ago.

"CII expects the central government's deficit for the fiscal year 2002-03 at 6 per cent of the GDP, or Rs 149,000 crore (Rs 1,490 billion), and the combined deficit over 11.4 per cent as against 10 per cent during 1990-91. This is unsustainable," Soota stated.

Regretting that several state governments have been financing their growing deficits by setting up bond-financed special purpose vehicles backed by their own guarantees, Soota said since 1994-95, these governments have raised a whopping Rs 165,000 crore (Rs 1,650 billion) through bonds.

"As of now, most of them are worse than junk bonds as they are backed by the promises of fiscally bankrupt states. In fact, an estimated Rs 45,000 crore (Rs 450 billion) worth of bonds (SPV paper) are set to devolve in the current fiscal (2003-04) because of payment defaults," Soota claimed.

Even in the case of GDP growth rates, a few progressive states such as Karnataka, West Bengal, Haryana and Tamil Nadu have seen growth above the national average of 5.8 per cent, while states like Maharashtra, Punjab, and Gujarat have been losing steam, under-performing from 1994-95 to 2000-01. Rajasthan, Bihar, and Orissa have been slipping behind other states during the same period.

Giving an account of the Indian economic scenario, Soota, who will be relinquishing his post as the president of CII, said the economy was on the upswing since April last after 6 years of declining growth in industrial production and manufacturing.

"The index of industrial production grew by 6.4 per cent in October last, while the manufacturing sector registered a high growth of 7.6 per cent in the same month," Soota disclosed from a survey conducted by the CII.

On the inflation front, the CII fears that the ongoing Iraq war may increase the inflation by 1.5 per cent from the current level of 5.13 per cent at the wholesale price index.

According to a CII survey of the three broad sectors of the Indian economy --manufacturing, services, and agriculture, 15 sectors grew by 20 per cent as against 4 sectors in the last fiscal (2001-02).

They include cars, steel, cement, 2-wheelers, consumer electronic goods, air-conditioners and pharmaceuticals.

On the export front, 21 sectors registered a growth of 10-20 per cent as against 8 sectors last year.

Due to one of the worst droughts in the country, the CII, however, expects a negative growth in agriculture.

In the agro-foods sector, alcoholic beverages are estimated to grow by 6.5 per cent, beer industry 11 per cent, edible oil 12 per cent and biscuits 8 per cent.

In the services sector, air cargo will post a growth of 10 per cent for the fiscal 2002-03; construction 12 per cent, hydro electric power 8 per cent; thermal power over 6.4 per cent, hotel 15 per cent and leasing hire purchase by 5 per cent.

"Remarkably, cellular industry recorded a phenomenal growth of 86 per cent, while housing finance shot up to 42 per cent," Soota declared.