The State Legislative Assembly on Tuesday night enacted the AP Fiscal Responsibility and Budget Management Bill to enable the government to enforce strict fiscal discipline.

The bill fixes the target for reducing the revenue deficit by 0.32 per centage point of gross state domestic product (GSDP) in each financial year, beginning from April 1, 2005, so as to eliminate the deficit by Mach 31, 2009 and to generate revenue surplus thereafter.

The bill also seeks to reduce fiscal deficit by 0.25 per centage point of GSDP in each financial year from April 1, 2005, so as to bring it down to not more than three per cent by the year ending on March 31, 2010.

The bill replaces an ordinance promulgated by the Governor on June 3, 2005.

The government has to ensure, within a period of five years beginning from the initial financial year on April 1, 2005 and ending on March 31, 2010, that the outstanding total liabilities do not exceed 35 per cent of the estimated GSDP for that year. It is also proposed to limit the amount of annual incremental risk weighted guarantees to 90 per cent of the total revenue receipts in the year preceding the current year.

While the Telugu Desam and Bharatiya Janata Party supported the bill, the ruling Congress' allies -- the Left parties and Majlis-e-Ittehaadul Muslimeen opposed it.

Replying to the debate, Finance Minister K Rosaiah said that the enactment of this legislation would enable the state government to get the write-off of current year's debt and also interest relief to an extent of Rs 1,378 crore (Rs 13.78 billion).

The structural loan proposals would be processed by the central government on the enactment of this bill. The state would get additional financial assistance of Rs 6,830 crore (Rs 68.30 billion) during a five-year period.

The minister said the Bill was patterned on the lines of Fiscal Responsibility and Budget Management Act 2003 enacted by Parliament. The 12th Finance Commission had proposed a very attractive scheme of write-off of central loans and debt restructuring for the states which adhered to a defined path of fiscal discipline.

The commission recommended that the debt relief should be available only to those states which enacted a fiscal responsibility legislation prescribing specific annual targets with a roadmap for eliminating the revenue deficit by 2009-09 and reducing the fiscal deficit based on a path for reduction of borrowings and guarantees.

A Reserve Bank of India Task Force drafted a model fiscal responsibility legislation for the states providing for elimination of revenue deficit and building up of adequate revenue surplus, for pursuing policies to raise non-tax revenue to ensure cost recovery and also equity and for laying down the principles governing capital expenditure which should lead to growth, equity and welfare.

The state government would be required to submit to the state legislature the medium term fiscal policy statement, fiscal policy strategy statement, macro-economic framework statement along with the quarterly review of receipts and expenditure in relation to the budget estimates.

Rosaiah claimed that the state's fiscal position has improved since the Congress came to power in May 2004 due to financial discipline observed by the government. He said the Congress government had brought down the revenue deficit from Rs 3,000 crore (Rs 30 billion)

in 2003-04 to Rs 1,962 crore (Rs 19.62 billion) in 2004-05.

The previous TDP government had availed overdraft facility from the RBI for 226 days during 2003-04. But the present government did not avail the overdraft even for a single day as it was managing its own resources well, the finance minister pointed out.