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MoF approves Tenth Plan approach paper

The Union finance ministry on Wednesday approved the Tenth Plan approach paper which proposes, among other things, a hike in budgetary support to states and modification to the Gadgil-Mukherjee formula for central assistance to achieve a higher 8 per cent annual growth rate.

"On every issue in regard to the approach to Tenth Plan, the views of the Planning Commission and the finance ministry were identical," Union Finance Minister Yashwant Sinha told reporters after a meeting with commission's deputy chairman K C Pant in New Delhi.

The approach paper proposes stepping up divestment target to Rs 160 billion annually, raising investment ratio to 32 per cent from 24 per cent, and increasing tax-GDP ratio to 11.7 per cent from the current 9.2 per cent.

Though the two sides agreed to peg GDP growth rate at 8 per cent during 2002-07, Sinha said that the aim would be to attain 9 per cent growth during the decade.

Official sources said that the two sides agreed to increase the gross budgetary support to 4.5 per cent of GDP during the Plan period which would go up to 5 per cent by the end of the Tenth Plan in 2007. At present gross budgetary support is a little less than 4 per cent of the GDP.

Sources said that a committee under the chairmanship of N K Singh, member of Planning Commission, would be set up to examine the issue of 'delinking external aid from gross budgetary support'.

Under the revised Gadgil-Mukherjee formula accepted by the finance ministry, sources said, "A higher weightage would be given to performance but in a manner that the backward states can reach such levels."

Earlier, no weightage was given to performance by population. However, performance weightage by population is being included so that backward states, which show an improvement in population control will benefit equally along with states such as Kerala and Andhra Pradesh which have managed to achieve low population growth rates.

"In general, the formula would ensure equal benefits. If no state shows any improvement, there will be no change in formula. If all states improve by the same percentage, then also there will be no change in formula, sources said.

"As part of performance indicators, the states revenue efforts would be widened to include both tax and non-tax revenue, while the concept of states' own resources would now be regarded as the states' own funds, they said.

On increasing the investment ratio to 32 per cent from the present level of 24 per cent, sources said that there was general agreement that the growth had to be brought about through a combination of improvement in investment rate and in that of investment in capital assets.

"There has to be a combination of improvement in resource mobilisation as well as curtailing public expenditure," they said.

As part of the Centre's expenditure control efforts, the Tenth Plan paper envisages downsizing the staff strength by 3 per cent per annum.

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