To ensure a smooth approval of the Tenth Plan document by the National Development Council in its 50th meeting on December 21, the government is working hard to appease the states by providing some quick-fix solutions to help them tide over their liquidity crunch in the short term.
According to sources, the Reserve Bank of India is likely to increase the ways and means advance limits for the states before the NDC meets next Saturday.
RBI Governor Bimal Jalan would be considering the proposals of Ramachandran Committee on states' WMA here on December 20.
While this will address the immediate concerns of several states which are finding it difficult to meet even their current expenditure from their total revenue receipts, the larger and more vexed issue of a debt swap package has still not found favour with almost half of the states.
Sources said the central bank has bailed out the states at least twice in the last three years by increasing their overdraft facility. As of now, it stands at around Rs 6,200 crore (Rs 62 billion).
States are allowed to be on overdraft for 12 days compared to 10 days for the Centre. Sources, however, did not spell out the increase in WMA limit recommended by the Ramachandran Committee.
The government's urgency to address the financial crises of the states is understandable given the fact that not much has been achieved since the last National Development Council meeting on September 1, 2001.
Planning Commission Deputy Chairman K C Pant had then drawn attention to the deterioration in the states finances which was sharper than that of the Centre.
Finance and Company Affairs Minster Jaswant Singh had told Parliament on Wednesday that he had worked out a broad policy framework on financial relations with the states.
This, he said, included a holistic look at ways and means advances, Central loans, tax relief and value-added tax.
Officials in the finance ministry said the Centre had agreed in principle to compensate the states for the notional losses they would incur after the introduction of VAT from April 1, 2003.
They said, the Center would make good 100 per cent of their notional losses estimated at about Rs 3,000 crore (Rs 30 billion) in the first year of VAT implementation.
The finance ministry is also pushing hard for finalising the debt swap package which entails retiring Rs 100,000 crore (Rs 1,000 billion) high-cost debt of the states in the next four years.
While the ministry would allow additional market borrowings by the states to retire a portion of the debt, the states would part with 20 per cent of their small savings inflows to pre-pay their high cost debt carrying an interest rate of about 13.5-14 per cent.
According to officials, 16 states have agreed to the debt swap package proposed by the Centre.
These include Andhra Pradesh, Maharashtra, Tamil Nadu, West Bengal, Maharashtra, Rajasthan and Kerala amongst others. Some of the states, which have rejected the Centre's proposal have, however, have asked the Centre to write off its loans.