Constitution of a working group of State Finance Secretaries to explore the scope for reducing the interest burden of states, including measures such as, debt prepayment and recource to floating rate debt instruments was an important decision taken at the conference of the State Finance Secretaries held in the Reserve Bank of India today.

Yet another significant decision was constitution of a task force on similar lines to analyse and report on the extent of manouverability available in budget making at the state level as also, scope for increasing budget flexibility. The Reserve Bank of India providing technical and secretarial support to both the groups.

Other important matters on which consensus was arrived at were:

1. The Reserve Bank to further pursue with more state governments tapping of the market through auction method for the state level borrowing programme within the present option of 5 to 35 per cent and also the possibility of enhancing the limit for such access from the existing level of 35 per cent, to say, 50 per cent.
2. The Reserve Bank to make technical analysis of multi-dimensional aspects of fiscal deficit in relation to the state domestic product and the debt burden of the states;
3. Constitution of core respondents among the State Finance Secretaries to help the Advisory Group on Fiscal Transparency (Dr. Ahluwalia Goup) finalise its views on the level of the existing and the desirable fiscal transparency at the states level.
4. State Finance Secretaries to study the Reserve Bank’s technical approach paper on legislation relating to fiscal responsibility in the light of ongoing exercises on the subject in the Union Government and respond with suggestions;
5. As requested by the State Finance Secretaries the Reserve Bank will make a study on the changing nature of contingent liabilities, weights to be attached, manner of administration of Guarantee Fund and circulate the report among state governments for their guidance;
6. State Finance Secretaries also requested that the Reserve Bank to convene a meeting of State Finance Secretaries and the credit rating agencies in which the rating agencies would make a presentation of the methodology of rating state government guaranteed bonds. The State Finance Secretaries suggested that the meeting should be held soon, in view of the proposed use of such ratings for prudential purposes. The Reserve Bank agreed to hold the meeting.

The Reserve Bank has been holding a conference of State Finance Secretaries from time to time to facilitate exchange of views. Officials of the central government and Planning Commission are also invited to the conference.

Actions taken in the past few years by several states including better management of their treasuries, legislative initiatives in imposing a ceiling on state government guarantees, budget transparency, etc., are reflective of the usefulness of the interactions in these conferences.

Today’s conference also discussed aspects and issues relating to the auction system for market borrowings by state governments and state government guarantees. The State Finance Secretaries were apprised of the status on enactment of the proposed Government Securities Act, progress of the work of the Committee on Voluntary Disclosure Norms and about constitution of Consolidated Sinking Fund.

Today’s conference had also the benefit of interacting with Dr Montek Singh Ahluwalia, Member, Planning Commission & Chairman of the Advisory Group on Fiscal Transparency set up by the Standing Committee on International Standards and Codes (Chairman: Dr. Y V Reddy).