However, expenditure secretary D Swarup said the finance ministry is likely to come up with steps in the Budget to absorb the higher outgo and yet lower fiscal deficit to the fiscal responsibility and budget management mandated limits.
"All put together, the total fiscal implication will be Rs 26,000 crore in 2005-06, which works out to be 1 per cent of GDP... But we are ready for the impact. We will factor it in the budget," he said elaborating on the finance panel report.
In a major effort to improve state finances, the TFC had suggested debt relief by rescheduling all outstanding loans of central loans to states totalling Rs 1,28,795 crore (Rs 1287.95 billion).
Under the scheme, the centre will reschedule all loans with a fresh tenure of 20 years and a lower interest rate of 7.5 per cent as against the current rate of 9 per cent.
"The debt relief will work out to Rs 21,276 crore (Rs 212.76 billion) in interest payments and another Rs 11,929 crore (Rs 119.29) in repayments during 2005-10," Swarup said.
The debt relief scheme is, however, conditional and will be applicable to states which enact fiscal responsibility and budget management legislations that will prescribe annual targets with a view to wipe off revenue deficit by 2008-09.
"So far, only five states -- Karnataka, Kerala, Tamil Nadu, Punjab and Uttar Pradesh -- have enacted FRBM. Maharashtra has introduced a legislation," Swarup said.
States will also benefit from a debt write-off scheme, which will however be linked to the amount in reduction of revenue deficit by states.
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