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Gujral's largesse, states' nemesis




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Folks,

Fiscal discipline is something that almost always takes a back seat as
populist policies or whims of people in power are implemented
mindlessly. The enclosed article very clearly shows a case in point. It
would help immensely if someone could verify the facts from other
independent sources so that we do not go down the wrong track splitting
hair on somebody's opinions rather then zeroing in on facts.

The following article was published in "Rediff On The Net" site. I
thought people here might take interest in it.

Happy reading.

Umesh
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Business Commentary/ Rajiv Shukla

 Gujral's largesse, states' nemesis

     It is hard to believe but one decision of the Inder Kumar Gujral
government
 has destroyed the financial structure of most of the state governments.

 Several big states like Uttar Pradesh, Punjab, Jammu and Kashmir and
 Karnataka are on the verge of financial emergency.
    The situation is no better in many states and the provincial
governments
 have no money to pay salaries to their employees. They have crossed the

 limit of overdraft and the central government is also finding it
difficult to bail
 out these states.

    The government is already interacting with the World Bank for a Rs
150
 billion loan, and the World Bank has put a condition for opening up the

power sector to  foreign companies.

    Although the financial situation in more than 15 states was already
bad and
 states like Bihar have been crisis-ridden for several years now, it was

not
 that bad in many states before Gujral government's decision to
implement
 the Fifth Pay Commission report.

   This single decision has broken the back of most of the state
governments
 and the central government is also facing a very tough time as the
fiscal
 deficit has gone very high.Gujral might have taken this decision under
pressure
 from the Left Front leaders who cannot get over their trade union
 mentality,but it has caused massive damage to the nation's economy.

    In states like Punjab and Andhra Pradesh, 86 per cent of
 total government money is being spent on salaries. Only 14 per cent is
 left for development work and other administrative work for the
functioning
 of the state. In Jammu and Kashmir, 100 per cent of the state funds
 are being used for salaries and not even a single penny is spent on
other
 things. In some states, the salary budget is more than 110 per cent and

state
 governments are borrowing money from the overdraft pool to pay
 salaries.

     The total picture is so gloomy that in three years time,
 90 per cent of the state governments will be bankrupt and they would be

 forced to declare financial emergency.

      The central government's economic condition is also going to be
very bad
 and in this situation, the Centre would not be able to
 help any state government. One can imagine how people would agitate if
 there is no developmental work, leading to chaos in many states.

    All this has happened because the salary budget has suddenly gone up

10
 times after the implementation of the Pay Commission's recommendations.


     To woo his Communist friends in a bid to save his
 government, Gujral has compromised with the national interest. Worse,
he gave
 Rs 80 billion more under pressure from trade unions.
     In fact, Gujral was in a hurry to go to the USA and these unions
had
 threatened a nationwide strike. Just because he would
 not have been able to go to the USA in that situation, he donated Rs 80

 billion more from the national exchequer.
     P Chidambaram, the then finance minister and T S R Subramaniam, the

then
 Cabinet secretary, opposed it. But Gujral did not listen to them. He
got angry with
 Subramaniam. Every state government had pleaded with Gujral that before

 implementing it, he should consult them, but he ignored the plea.



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