The Hindu : Consensus on user charges for State services suggested

Online edition of India's National Newspaper
Thursday, Dec 12, 2002

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Consensus on user charges for State services suggested

By Our Special Correspondent

CHENNAI DEC. 11. Fiscal transfers from the Centre should not penalise the States that perform more efficiently in the delivery of social services or raise more revenues relative to their tax base, the Governor of Andhra Pradesh and former Governor of the Reserve Bank of India (RBI), C. Rangarajan, said here today.

"The task of formulating a sound transfer system has to establish a fine and productive balance between equity and efficiency — a system where fiscal disadvantage (faced by low-income States) is taken care of but fiscal imprudence is effectively discouraged," Dr. Rangarajan said.

Releasing a book on "Development, Poverty and Fiscal Policy," a collection of contributions by eminent economists at a seminar organised in honour of Dr. Raja J. Chelliah, Chairman of the Madras School of Economics, Dr. Rangarajan called for a consensus on user charges for State services in the context of the precarious financial position of the States. Efficiency norms must be imposed by a regulatory authority and the tariff or price structure of the services "can, and perhaps, must, incorporate some element of cross-subsidisation," which was inevitable in a society with gross inequalities.

Dr. Rangarajan said that to achieve targeted rates of economic growth, public sector investment should be expanded and directed towards social and economic infrastructure. But this must be financed by raising tax and non-tax revenues and by expenditure-side efficiencies, and not by expanding borrowing beyond safe limits. "In effect, public sector savings must go up," he added.

Dr. Raja Chelliah, Chairman, who was felicitated on the eve of his 80th birthday, said he considered as the biggest achievement of his career the movement of the indirect tax system in India towards value-added tax (VAT). "I can take the credit, and the blame, for it", he said.

M. Govinda Rao, Director, Institute for Social and Economic Change, Bangalore, and the Director-designate of the National Institute of Public Finance and Policy (NIPFP), New Delhi, (who has edited the book published by Oxford University Press), and M. Anandakrishnan, former Vice-Chairman, Tamil Nadu State Council for Higher Education, paid tributes to Dr. Chelliah's contribution to the theory and practice of public finance and tax reform in India.

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