Assam: Reorienting Fiscal Strategies Towards Economic Development

3.1    Introduction

1.       Notwithstanding a decade of relatively rapid economic growth in India following the sweeping economic reforms initiated in 1991, the pace of growth in Assam has slowed down in recent years. It has among the poorest infrastructure and social indicators. Its infrastructure development index is only 79 in comparison to the base level of 100 for the country [NIPFP (1998)]. Despite its rich natural resources and environment, its per capita income is the third lowest among India's states (after Bihar and Orissa). In this respect, its position has also been worsening relative to states such as Kerala, Madhya Pradesh (MP) and Uttar Pradesh (UP) that were at similar levels five years ago but have now advanced to higher levels.  There has been little progress at reducing poverty and Assam’s population estimated to be below the poverty line was about 41 per cent in 1993-94 against the all-India average of 36 per cent. While poverty in Assam declined from 51 per cent in 1973-74, its relative ranking among 15 major states dropped from 6 to 12. Apart from Haryana, Assam is the only state where there was a drastic worsening of the rank [Agrawal and Srinivasan (2000)]. Together with large-scale migration, this has led to a large and rapidly rising unemployment.

2.       Needless to say, a state’s public finances play an important role in improving its development performance. But, while the government’s development spending increased at the rate of 12 per cent in the 1990s, its spending on non-development grew at a much faster pace of 17 per cent (See Table 3.1). Within development, the share of spending on economic services shrunk over this period owing particularly to the decline within revenue expenditure (whose magnitude is three times more than capital expenditure). On the one hand, the growth in development spending has not kept pace with that in non-development spending and on the other most anti-poverty programmes suffer from considerable leakage and inefficiencies in their implementation. For example, in the running of the public distribution system for food security, Assam is the fourth lowest among 17 states in terms of reaching the subsidy to the bottom 20 per cent of households. At the same time, the leakage of rice and wheat from the system is as high as 69 per cent and 98 per cent respectively [Jha and Srinivasan (1998)].

3.       In this Chapter, we analyze the performance in recent years of Assam state government and local governments with a view to finding ways of improving the state’s development performance. The rest of the Chapter is organised as follows. In the next section we give a brief overview of the continuing fiscal problems in the state and consider various options. In section 3, we analyze the situation of local government finances as the lack of adequate effort towards local decentralization has gained a prominent place in recent policy deliberations. In section 4, we present possible fiscal strategies for the state government to pursue in order to improve the development conditions in the state and summarise them in the form of an action plan in the last section.

Table 3.1: Annual Rate of Growth in State Finances of Assam (1990-91 to 2000-01)

Source: RBI Report on State Finances

Notes: 1. GSDP figures from 1997-98 are projected based on past trends. 2. The budget data for 1999-2000 relate to revised estimates and for 2000-01 to budget estimates.

3.2    The Fiscal Position of the State Government

4.       As the first step in its response to the fiscal crisis, the Government of Assam (GoA) decided to inform the public of the magnitude of the problem. It issued a White Paper on the state's finances, pointing out specifically that it “had to resort to increased borrowings over the years to meet its current expenditure requirements which, if not drastically curbed, will lead the state irretrievably into a debt trap” [GoA (1999)]. This gives an insight that the Assam government is indeed aware of the need to take steps to set right its fiscal position. However, the White Paper stops short of making any recommendations whatsoever on the strategies that it should adopt to get over its fiscal problems. In the following, we analyze various aspects of state fiscal policies and performance and suggest possible strategies to be followed.

3.3 Revenue and Expenditure

5.       Analyzing data over a 15-year period beginning 1984-85, GoA (1999) recognises the “failure of revenue receipts to meet … rapidly growing expenditure commitments, particularly expenditure on salaries, wages, allowances and pensions”. While the wage bill is rising due to both rising number of employees and higher wages, the state government has “never been able to meet” this expenditure from its own revenues, except in 1986-87. However, subsequently the fiscal reforms committee [GoA (2001)] set up by the government recommended “curb on fresh employment and reduction of total number of government employees @ 2 per cent per year over the next 5 years”. It also recommended a freeze on dearness allowance for at least three years. The White Paper points out the heavy losses incurred from negligible returns from capital expenditure on projects and investments in public sector undertakings, declining buoyancy of state tax revenues, and the consequent rising costs of public debt and higher borrowings.

6.       Increased spending on infrastructure, social sectors and maintenance will be required to improve the quality of services provided before such costs can be recovered through increased user charges. The reform framework should ensure that the proposed public investments are fiscally viable. They should also create an environment for implementation of the sector reforms focusing on programs in the education, health, irrigation, infrastructure and other sectors to crowd-in private investment. Such a statewide reform program would provide Assam with a unique opportunity to breakout from stagnation and move on to a rising growth path.

3.4   Dependence on the Centre

7.       The increasing dependence of the state government on the Centre is reflected in the share of revenue generated from its own sources in its total revenue receipts declining from about 40 per cent at the beginning of the decade to just about 30 per cent at the end of it (See Table 3.2 and Figure 3.1). This is a result of a lower annual growth rate of 12.5 per cent in the state’s own revenue receipts than that of Central revenue transfers 16.4 per cent [GoA (1999)]. In addition, the composition of Central transfers shows a decline in the share of state plan transfers and shared taxes; to be covered up mainly by centrally sponsored schemes and non-plan grants. Furthermore, as regards borrowings, market loans by the government have risen at the rate of 18.1 per cent and state provident funds at 15.41 per cent against the rate of growth of Central loans at 6.31 per cent.[1] Table 3.3 presents the accumulated arrears of revenue that has not been collected partly due to pending court cases.

Table 3.2: Percentage share of Revenue Receipts in GSDP

Table 3.3: Outstanding arrears of state government tax revenue (Rs Lakh)

Figure 3.1: Contribution of Central transfers to State Government Expenditure

3.5    Deficits

8.       Assam is currently facing a fiscal crisis of unprecedented proportions. It is caught in a vicious circle where low growth keeps both living standards down and reduces revenue yields. There are growing concerns about rising revenue deficit in the state, mainly due to a deterioration of its budgetary position and the persistence of poverty (See Figure 3.2). Frequent law and order problems over the past decade have led to a rapid deterioration in the quality of governance. Poor governance and high growth in the government's wage bill have led to high and growing deficits (See Tables 3.4 and 3.5). For instance, the revenue surplus of 1.41 per cent of GSDP in 1996-97 declined to 0.41 per cent in 1998-99. The revised and budgeted figures for 1999-00 and 2000-01 show a further and steep decline in this surplus (converting it into deficit) to –5.84 per cent and –3.63 per cent respectively. The corresponding fiscal deficit is of the order of about 10 per cent and 8 per cent respectively. It is interesting to note that under two alternative reform scenarios, one with reforms by the state government and the other including a major role by the centre as well, NIPFP (1998) had projected the fiscal deficit of the state to decline to less than 3 per cent by 2000-01.[2] Among other things, their first scenario assumed annual reduction in government employment of 1 per cent while for the second it was 2 per cent accompanied by payment of arrears of petroleum royalty and insurgency related expenditure by the Centre. Obviously, there has been a slowdown in the past few years in implementing the suggested reforms.

Figure 3.2: Deficits of the State Government (per cent of GSDP)

Table 3.4A: Percentage share of Expenditure in GSDP

Table 3.4B: Composition of Expenditure (Percentage of GSDP)

Table 3.5: Fiscal deficit as a percentage of GSDP

3.6    Borrowings, Guarantees and Debt

9.       Persisting fiscal deficits are one of the most significant weaknesses of the state economy, with public sector borrowing crowding out private sector borrowing and increasing macroeconomic risks. Among other things, the declining contribution of Central transfers to total state spending in the last decade has led the state to rely increasingly more on borrowing of various kinds including market borrowing at rising interest rates. The “debt servicing costs account for as much as 95 per cent of fresh debt contracted” and the repayment of principal and interest on Central loans exceed the receipts [GoA (1999)].

10.   In addition to borrowings, government guarantees are growing and being used extensively in mobilising funds for capital expenditure (Table 3.6). The high levels of guarantees may not imply immediate obligation but could lead to a large burden on state finances in future. State guarantees have the potential of worsening an already poor fiscal system through the hidden fiscal risk of contingent liabilities associated with such guarantees in a situation of default.[3] In cases when guarantees are invoked, the state government would be liable to pay both the principal and the interest due. Indeed, most of the government guaranteed loans have been subject to default according to GoA (1999).

Table 3.6: Guarantees (contingent liabilities) given by Assam State Government (Rs Lakh)

11.   The fiscal crisis along with diversion and inefficient utilization of funds does not allow the state to invest for strengthening the foundations for economic growth and improving social achievement. This has resulted in an unsustainable level of indebtedness. The combined burden of interest bearing public debt and guarantees together as a ratio of NSDP currently stands at 43 per cent. Trends in public debt should be seen with caution as the reported debt has been lower than the actual debt by a factor of about 20-30 per cent due to exclusion of contingent liabilities on account of guarantees issued by the government. For example, in 1998-99 the government’s actual outstanding aggregate liability was 37 per cent of GSDP against the conventional estimate of only 31 per cent (See Table 3.7).

Table 3.7A: Outstanding Debt Position of Assam State Government (Rs Lakh)

Table 3.7B: Outstanding Debt Position of Assam State Government (per cent of GSDP)

3.7    Shortage of Liquidity and Ways and Means Advances

12.   A government can spend only to the extent that it has the cash to pay for. But often due to delays in receiving payments in time, they run into short run liquidity problems. To tide over such mismatches between their receipts and expenditure state governments maintain certain interest-free balances with the RBI.[4] In turn, the RBI provides them reasonable amount of temporary advances to tide over their liquidity problems through Ways and Means Advances (WMA) and Overdrafts. The record of the North-Eastern states, particularly of Assam, in their dealings with the RBI in this arrangement is worrisome. For example, during 1997-98, of the 16 states that resorted to overdrafts, in three states – Assam, Manipur and Mizoram – payments were stopped, as they could not clear their overdrafts with the RBI within the stipulated time limit of 10 consecutive working days. The problem was particularly severe in Assam where payments were stopped as many as eight times. A similar situation continued during the following year. In the first seven months (April-October) of 1998-99, 16 state governments were again in overdrafts. Of these, in four States – Assam, Manipur, Mizoram and Nagaland – payments were once again withheld, as they could not clear their overdrafts within the specified period.

3.8    Public Sector Enterprises

13.   Assam has 49 state Public Sector Enterprises (PSEs). Of these, the Assam State Electricity Board (ASEB) and the Assam State Transport Corporation (ASTC) alone account for more than 90 per cent of the total state government investment in the PSEs, which was of the order of Rs 2243 crore in 1996-97. But such investments have yielded very poor returns to the state government due to over-staffing, large overhead costs, low capacity utilisation, and financial mismanagement making most of the PSEs unviable. In addition ASEB also suffers from frequent breakdowns, high “transmission and distribution losses” and the cost of production in thermal, gas based and hydel-power plants exceed tariff. Interestingly, ASEB accounts for the lion’s share of guarantees given by the state government while the arrears of electricity duty to be collected have surpassed more than 1000 per cent of actual tax collected (See Tables 3.3 and 3.6). Due to accumulated losses and high liabilities on account of power purchase, fuel supplies and rising debt obligations the net worth of the Board has become negative. It was less than –Rs 880 crore in 1998-99. While the average tariff charged by ASEB in that year was Rs 2.62/ Kwh, its net loss per unit of sale was much higher at Rs 3.15/ Kwh.[5] Clearly, imposition of appropriate user charges should be high on the agenda of reform. According to GoA (1998), a high-level committee set up is likely to recommend further investment to restructure the Board and strengthen and improve its distribution network and this will increase the net outflow from ASEB.

14.   The ASTC is the only state-wide public transport service covering remote rural and hilly areas with poor road conditions, uneconomic load factors and lack of private operators. Moreover, it also runs buses for school children, aged people and the public sector. These add up to a high cost and with low tariffs the operation of ASTC is uneconomical making it increasingly more dependent on budgetary support from the state government. The immediate solutions seem to be to invest in better roads and to reduce ASTC’s services in areas that are served well by private transport operators.

15.   Among the rest of the PSEs in the state, most were created for implementation of socio-economic programmes for weaker sections again with very low returns. Many of these are not operational and the government is trying to revive them through joint private partnerships and leases. Once again, the solution seems to be to charge appropriate fees/ charges for the services provided while at the same time improving the efficiency of operation of these enterprises.

3.9     Local Decentralization and Governance Issues

16.   An important aspect of the fiscal situation in a state is the position of its local governments. Local decentralization has both political and economic rationales. It leads to increased political responsiveness and participation at the local level, higher allocative efficiency of public spending reflecting local needs, higher competitiveness of local governments leading to better innovation and increased willingness to pay for local services. It is also expected to achieve higher economic efficiency, better accountability, larger resource mobilisation, lower cost of service provision and higher satisfaction of local preferences. Moreover, at the macroeconomic level, quality of governance could be greatly enhanced by greater fiscal decentralization. These improvements can be brought about through local fiscal autonomy, which stands for the right and capacity of local governments to collect, decide upon and spend their own revenues. But for such achievements local bodies require, among other things, substantial administrative capacity, significant discretion over financial resources and willing bureaucrats.

17.   Among the seven sisters, most of which were carved out of Greater Assam – and include Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura, the state of Assam pioneered the introduction of Panchayat Raj System and conducted regular elections till 1992. However, since then there has been no election despite the 73^rd and 74^th Constitutional Amendment Acts to strengthen local decentralization. At present there are three distinct systems of local government in Assam.

- Plain areas with 21 districts having Panchayati Raj System

- Hilly and tribal districts under two Autonomous District Councils: Karbi-Anglong and North Cachar Hills with elected councils at district level but no village government

- Areas inhabited by Bodo and other tribals under different autonomous councils representing different ethnic groups

18.   The local governments in this state are not developed well particularly in rural areas. For example, as opposed to 2500 people that are served by a rural panchayat on average among all the states in the country, in Assam the corresponding number is more than 7000. While the numbers served by urban municipalities is lower for this state at 3100 against the all-state average of 5600, the urban share of its population is too small to make a difference. Despite the Amendments to the Constitution, the local governments are very poor in contrast with the situation in other states. Tables 3.8 and 3.9 show that rural governments in Assam are much poorer than their urban counterparts and compared to other states, both urban and rural local governments in Assam play a relatively insignificant role in the provision of local services. The rural governments in Assam spend on average just about Rs 17 per capita per annum as against the average for all-states, which is close to Rs 300. Even in urban areas the per capita spending made by local bodies in Assam is less than Rs 200 per annum against the average figure for all-states of almost Rs 7000 (Figure 3.3). A substantial portion of local government spending in this state is on non-developmental items including staff salaries and other administrative expenses. The expenditure on core services is less than 40 per cent of the total by urban governments and less than 30 per cent by rural governments.

19.   While the existence of panchayats in terms of resources generated is negligible in Assam, its municipal bodies also generate a meagre amount of about Rs 130 per capita per annum. In contrast, municipal bodies in the other states generate as much Rs 560. The state government carries out most of the spending in the state as seen from Figure 3.4. This reflects to a great extent the lack of decentralization in the state. The weak local governments that lack adequate powers, functions and resources have resulted in a poor pace of development and adversely affected the process of poverty alleviation. In the absence of proper governments at the local levels, this situation is compounded by the fact that programmes for rural development are planned and implemented by state officials and instead of catering to the poor they benefit more the undeserving classes. Increasing poverty, division between tribals and non-tribals and diversion of public funds has encouraged corruption and also the youth to join the cadres of insurgency thereby adding to the law and order problem. Moreover, some development funds of the state government are also apparently being used to support these groups [Thapliyal (2001)]. One of the ways out of such a situation would be to increase people’s participation in the process of governance through regular elections to local bodies and their strengthening by means of implementation of the 73^rd and 74^th Amendments in true spirit. The first and foremost requirement therefore is to establish well-functioning rural and urban local governments through regular and fair elections.

Table 3.8: Composition of local government finances: 1997-98

Table 3.9A: Per capita revenue generated in local areas from own sources by local and state governments net of shared taxes and transfer of grants (Rs per annum)

Table 3.9B: Per capita spending in local areas by local and state governments net of shared taxes and transfer of grants (Rs per annum)

20.   The administrative machinery and tax collection capacity of local governments would have to be improved through institutional development in addition to passing more tax powers to them. The buoyancy of local taxes could be improved by imposing taxes on an ad valorem basis, correcting for under-valuation of property, introducing price differentiation between commercial and residential property, and cutting out exemptions. The state government should fix only the minimum rates – leaving the actual rate fixation to local governments to promote tax competition, higher revenue generation and better service provision. New taxes such as on cable television could also be envisaged for improving local revenues.

21.   To improve the availability of trained staff the state could either transfer its own staff or make new recruitment from within local areas. The appointments could be made on temporary/ short-term contract basis to keep the service costs low and avoid legal complications. It is to be noted in this context that due to increase in service cost, the state government has been planning to downsize the strength of its employees by not filling up posts, which have fallen vacant due to retirement and the like. However, the target for staff strength could be maintained even with new contractual appointments by downsizing to a greater extent appropriately. As an additional measure, the workload of staff that are laid off could be reallocated to other regular workers as some officers and staff has been found to have insufficient workload. As yet another measure, some of the work on accounts and establishment may be computerized and work carried out by technically competent staff to allow for further downsizing. The government could also cancel illegal appointments of teachers.

22.   There would also be a continuing need to develop training infrastructure and train the technical staff, for example, the accounts staff to be trained in panchayat/ municipal finance, accounts and budgeting. Apart from induction courses, they would need refresher courses at regular intervals. Another key to successful decentralization is to train local staff so as to make them more supportive of the community action programs. These steps aimed particularly at the educated youth would also help solve the insurgency problem, at least to a certain extent.

3.10    Fiscal Strategies for the Future

23.   An immediate consequence of the state's fiscal crisis is a decline both in the quantity as well as the quality of public outlays in physical and social infrastructure. Such problems can be addressed by drastically reorienting the state’s economic policy framework to restore trust in its public institutions and improve its fiscal capacity to invest in basic infrastructure and social services. The state now needs to initiate a set of fiscal, governance and public enterprise reforms to restore fiscal sustainability, improve governance, and also accelerate economic growth through reforms in the key sectors of the economy to bring about greater technical and financial efficiency. A comprehensive set of fiscal reforms would include:

3.10.1   Public Expenditure Management

24.   There is a need for the Assam government to reorient its spending priorities towards growth and development enhancing activities such as capital expenditure/ rural infrastructure and employment programs particularly targeted at the youth to control the problems of insurgency. The safety net programmes of the government can be designed so as to create employment opportunities for uneducated youth. Since most poor live in rural areas, increasing employment in agriculture through higher investment in irrigation and other infrastructure, for example, roads and electricity can induce growth in the state. Also, higher irrigation through better productivity will help to raise real agricultural wages. Given the complementarity between public and private agricultural investment, maintaining a certain minimum level of public investment can crowd in more private investment in agriculture thereby improving the farming conditions, raising growth and reducing poverty. The government can also earmark funds to promote employment of educated youth for qualified jobs in schools, public offices and so on by appropriate downsizing elsewhere. For instance, it can examine the feasibility of curbing the rise in staff cost by transferring some staff from the state government to rural and urban locations to keep its staff size at a prudent level. Any new employment of staff can be on contractual and temporary basis. The government must also work towards rationalising subsidies and restricting guarantees to projects that have good credit rating and are financially viable.

3.10.2      Tax Policy

25.   The revenue collections in the state – both at the state and local levels – leave much to be desired. The situation at the state level can be improved by strengthening the administrative machinery for tax collection and by imparting technical training with possible help from the Centre. A focus is also needed on high-yielding and more buoyant sources of tax revenue such as land revenue, tax on vehicles/ passengers and goods, and state sales tax. In the current practice of collection of land revenue through the Mouzadars the government is loosing a large amount in the form of commission offered to these agents. Instead, the revenue officials in the circle offices may be entrusted with collection of land revenue. The government also loses substantial land revenue due to illegal occupation of government land and it would be worth initiating steps to evict them. Moreover, a sizeable proportion of cultivable and homestead land in rural areas are under Annual Patta. If these lands were brought under periodic Patta, the government would earn land revenue at enhanced rate. GoA (2001) specifies several measures to strengthen tax collection from different sources.

26.   At the local level, the administrative machinery and tax collection capacity of governments would require institutional development along with more tax powers. The buoyancy of local taxes could be improved by levying taxes on an ad valorem basis, correcting for under-valuation of property, introducing price differentiation between commercial and residential property, and cutting out exemptions.

3.10.3 Public Sector Enterprises

27.   The investments in Assam’s State Public Sector Enterprises (PSEs) have yielded very poor returns to the state government due to poor organisation making most of the PSEs unviable. Two large enterprises, ASEB and ASTC that have accounted for the major share of total state government investment in PSEs are plagued with problems of high costs and low tariffs and the Jain Committee has recommended a comprehensive package for ASTC. Increasing user charges and improving efficiency of operations of the PSEs is inevitable. User charges are potentially an important source of revenue and should be levied and collected vigorously for all public services whether provided by the state or the local governments. Such measures would generate resources for investments, encourage private investment in these sectors, reduce consumer costs and improve quality of services by promoting competition.

28.   Privatizing public sector enterprises would help reduce both the government’s role in not-so-relevant sectors and the dependence on special purpose vehicles for its borrowing requirements that allow a state to incur commitments but defer actual expenditures by, for example, accumulating payables to contractors in response to a budgetary crunch. Such mechanisms make the state budget constraint soft. Fiscal deficit in the state is increasing the borrowing requirements on the one hand and pre-empting a high proportion of borrowed funds into current consumption on the other. In line with the thinking in some other states, the government of Assam could also pursue the option of a fiscal responsibility act to impose an overall limit on borrowings or debt accumulation.

3.10.4 Accountability

29.   One of the important ways for the state government to proceed with reforms would be to make its fiscal operations transparent to the public. This would require full disclosure of all relevant fiscal information on its fiscal policy intentions, public sector accounts and projections in a timely and systematic manner. Its accountability can be increased by regularly (quarterly/ half-yearly) publishing reports on its receipts and expenditure including contingent liabilities and deviations from budgeted estimates with explanation for the latter. Transparency in fiscal policy can improve the quality of decision-making through greater scrutiny of government decisions and also facilitate a congenial atmosphere for investment and growth.

3.10.5 Decentralization to Local Bodies

30.   In the light of the 73^rd and 74^th Constitutional Amendment Acts to promote local governments, the state should work towards establishing well functioning rural and urban local governments through regular and fair elections. This will have to be supplemented by providing them fiscal autonomy to collect, decide upon and spend their own revenues. Programmes for local development will also have to be planned and implemented by local governments with people’s participation in the process of governance. Pasting monthly/ quarterly reports on receipts and expenditure of the local government outside their offices can increase the accountability of local governments and help to monitor the progress made through their development programmes. Strengthening local governments by giving them adequate powers, functions and resources is an important key to improve the pace of development and the process of poverty alleviation.

3.10.6 Role of the Central Government

31.   Per capita growth in Assam will continue to stagnate in the absence of wide-ranging fiscal and structural reforms. The suggested fiscal correction would however require counterpart funding from Central government/ donors (at least in the initial phase of reform), which would have to be done with appropriate monitoring and evaluation. The release of funds could be linked to actual improvements in social and economic indicators as reflected in incomes, poverty, mortality, quality of services, provision of basic infrastructure through spending on priority sectors particularly covering backward areas and the lagging classes of people. The devolution and transfer of funds from the Centre would have to be linked more firmly with improvement in fiscal performance, for example, tax collection relative to tax capacity, imposition of user charges, rationalisation of subsidies etc. The Central government may also need to give a special phased grant to repay part of the state liabilities with strict monitoring of its use and promotion of transparency in its fiscal operations.

32.   With the proposed reforms the state can improve the quality of its public services, raise the growth rate of its per capita income, stabilise its public debt and work towards reducing its debt-service ratio to focus greater attention on developmental issues.

3.11 A Summary of Action Plan

33. Initiate fiscal, governance and public enterprise reforms to restore fiscal        sustainability, improve governance and accelerate economic growth.
a. Reorient spending priorities
- Capital expenditure – rural infrastructure
* Irrigation
* Roads
* Electricity
- Employment
* safety net programmes targeted at rural areas and uneducated youth
* of educated youth in schools, public offices etc. by appropriate downsizing elsewhere
- Any new government employment on contractual basis along with downsizing of regular staff
- Staff transfers from state to rural and urban locations
- Rationalisation of subsidies
- Restriction of guarantees to viable projects with good credit rating

b. Improve tax revenue generation
- Strengthen administrative machinery for tax collection at state and local level
- Impart technical training with help from the Centre
- Focus on high-yielding/ buoyant taxes
- Levy taxes on ad valorem basis (on value, not quantity)
- Introduce price differentiation
- Cut out exemptions

c. Improve non-tax revenue generation
- Increase user charges appropriately at state and local level
- Improve efficiency of operation of public enterprises
- Privatize enterprises in sectors not very relevant for the government

d. Impose limit on total borrowings/ debt accumulation

e. Make fiscal operations transparent to the public
- Full disclosure of policy intentions
- Report on receipts/ expenditure and contingent liabilities

f. Establish well functioning local governments in urban and rural areas with
- Adequate powers, functions and resources
- Fiscal autonomy to decide upon, collect and spend their revenues
- Planning and implementation of development programmes

g. Central government to provide
- Initial counterpart funds for reform, with monitoring and evaluation
- Special phased grant to repay part of state liabilities
- Transfer of funds linked to fiscal performance

References:

Agrawal, P. and P.V. Srinivasan, (2000), “Social development in India: Performance and causes”, Chapter 7 in: K.L. Tang (ed), Social Development in Asia, Kluwer Academic Publishers, Netherlands.

Government of Assam (CFOR), (2001), Report of the Committee on Fiscal Reforms, December.

Government of Assam (White Paper), (1999), State Finances: The Factual Position, Finance (Economic Affair) Department, May.

Government of Assam, (1998), Memorandum to the Eleventh Finance Commission, Finance Department, December.

Jha, S. and P.V. Srinivasan, (1998), “On targeting food subsidies”, paper presented at the Symposium on Reforming India’s Social Sectors: Strategies and Prospects, organised by University of Mumbai, UN and NABARD, April 16-17.

National Institute of Public Finance and Policy, (1998), State Fiscal Studies: Assam, by D.K. Srivastava, S. Chattopadhyay and T.S. Rangamannar, June.

Reserve Bank of India, (1999), Report of the Technical Committee on State Government Guarantees (Convenor: Usha Thorat), February.

Reserve Bank of India, (2000), State Finances: A Study of Budgets of 1999-2000.

Thapliyal, B.K., (2001), “Democratic decentralization and rural development in North-Eastern states: A critical appraisal”, paper presented at the NIRD Foundation Day Seminar, Hyderabad, January 6-8, 2001.

*** This is Chapter 3 of the Assam Development Report, IGIDR for the Planning Commission of India, 2002