We believe that the private sector, both in agriculture and industry, will provide the needed thrust to economic growth. However, Government will have to continue to play a crucial role in strengthening the social and physical infrastructure. This cannot happen unless the fiscal health of the Government at the Centre and in the States improves considerably and gains strength. The realization of the social and economic objectives of the Ninth Plan depends critically on our being able to finance public investment in crucial areas of social and physical infrastructure. We will fail in our duty if we do not improve the Central and State finances. The Centre has started taking certain firm measures to fulfil our responsibility. I urge the State Governments, too, to put their finances in order. Dear Chief Ministers, recent trends in this regard are alarming. States own contribution to Plan financing has been almost non-existent. States are increasingly borrowing even to finance their current consumption. Reluctance to mobilize additional resources to meet increasing expenditure is the reason for this. There is a need for austerity all around to contain wasteful public expenditure. Revenue should be increased through a greater attention to efficiency and productivity of the enormous human and financial resources we invest in our various schemes. Can we accomplish this without a political consensus to end competitive populism? We are aware that the Centre has taken certain measures in recent years that have had serious though indirect, repercussions on State finances. As an example, I mention the implementation of the Fifth Pay Commission’s recommendations. Adoption of these at the Centre has had a snowballing effect on States. I can assure you that we will be more considerate of States interests in such matters in future. Charity begins at home. I would say the same about cutting the Central Government’s expenditure. I urge all Central Ministries to enforce expenditure management rigorously. Why should we not have more essential expenditure in the social sector. Today, there is both a need and scope to raise resources through levying reasonable electricity tariffs and irrigation charges. Untargeted and unintended subsidies often lead to distortions in resource allocation, besides failing to benefit the really poor. Reforms in the power sector, which we have been overdue must be quickly implemented by States. That will lead to better financial annotations of the power sector which under serves financial freedom for the time being. We should also address the problem of implicit subsidies. For instance, take the subsidies for higher education. Is it not paradoxical that even rich students pay college fees that, in some States, are less than what they spend on cold drinks? No Government can afford to provide costly services, free of cost, universally. They must levy reasonable user charges wherever possible, particularly for non-merit goods and services. What is required is a change in the mindset, in the fixed inherited nations about subsidized public services. We should not be prisoners of the past. Subsidized services should be restricted to only those who cannot afford to pay. There is tax competition among States to attract private investments. Such policies are harmful as States have lost tax revenue without much influencing investment decisions. This must stop. Better infrastructure, faster decision-making, and investor-friendly environment are more important in the decision making of the investor community. A practice that is pushing States towards fiscal crisis is the ready extension of guarantees to the borrowings of State-level public enterprises. These guarantees may devolve on State Governments, as the financial health of many such enterprises is not sound. This practice will hurt States credibility and adversely influence their credit ratings. Regional disparities are of concern, both across, and within States. Even some of the faster growing States have pockets that have lagged behind. We should exchange notes on lessons of such unbalanced development. Faster and widespread development is the medicine for many of the ills of our economy, polity, and society. Let us strive to live up to the expectations of the people, especially of the poorest, who are also the majority of voters. Modern communications and media have raised people’s expectations. We cannot forget that many of the social, political, and communal tensions we see today are due to the non-realization of these expectations. The 73rd and 74th Amendments to our Constitution, five years ago, provide for a third tier government. Still, several States have not yet imbibed the spirit of these Amendments. There is an urgent need for genuine devolution of political, administrative, and financial powers to the Panchayati Raj institutions. If democracy works at the national and State level, it will surely work at the village level also. Rather, democracy at the national and State levels will only be enriched by extending it to the grassroots. All of us cherish peaceful and orderly progress. Good governance is essential for this. The rule of law is a prerequisite site for good governance. However, it is violated in many parts of the country. That should not be allowed. We believe that the private sector, both in agriculture and industry, will provide the needed thrust to economic growth. However, Government will have to continue to play a crucial role in strengthening the social and physical infrastructure. This cannot happen unless the fiscal health of the Government at the Centre and in the States improves considerably and gains strength. The realization of the social and economic objectives of the Ninth Plan depends critically on our being able to finance public investment in crucial areas of social and physical infrastructure. We will fail in our duty if we do not improve the Central and State finances. The Centre has started taking certain firm measures to fulfil our responsibility. I urge the State Governments, too, to put their finances in order. Dear Chief Ministers, recent trends in this regard are alarming. States own contribution to Plan financing has been almost non-existent. States are increasingly borrowing even to finance their current consumption. Reluctance to mobilize additional resources to meet increasing expenditure is the reason for this. There is a need for austerity all around to contain wasteful public expenditure. Revenue should be increased through a greater attention to efficiency and productivity of the enormous human and financial resources we invest in our various schemes. Can we accomplish this without a political consensus to end competitive populism? We are aware that the Centre has taken certain measures in recent years that have had serious though indirect, repercussions on State finances. As an example, I mention the implementation of the Fifth Pay Commission’s recommendations. Adoption of these at the Centre has had a snowballing effect on States. I can assure you that we will be more considerate of States interests in such matters in future. Charity begins at home. I would say the same about cutting the Central Government’s expenditure. I urge all Central Ministries to enforce expenditure management rigorously. Why should we not have more essential expenditure in the social sector. Today, there is both a need and scope to raise resources through levying reasonable electricity tariffs and irrigation charges. Untargeted and unintended subsidies often lead to distortions in resource allocation, besides failing to benefit the really poor. Reforms in the power sector, which we have been overdue must be quickly implemented by States. That will lead to better financial annotations of the power sector which under serves financial freedom for the time being. We should also address the problem of implicit subsidies. For instance, take the subsidies for higher education. Is it not paradoxical that even rich students pay college fees that, in some States, are less than what they spend on cold drinks? No Government can afford to provide costly services, free of cost, universally. They must levy reasonable user charges wherever possible, particularly for non-merit goods and services. What is required is a change in the mindset, in the fixed inherited nations about subsidized public services. We should not be prisoners of the past. Subsidized services should be restricted to only those who cannot afford to pay. There is tax competition among States to attract private investments. Such policies are harmful as States have lost tax revenue without much influencing investment decisions. This must stop. Better infrastructure, faster decision-making, and investor-friendly environment are more important in the decision making of the investor community. A practice that is pushing States towards fiscal crisis is the ready extension of guarantees to the borrowings of State-level public enterprises. These guarantees may devolve on State Governments, as the financial health of many such enterprises is not sound. This practice will hurt States credibility and adversely influence their credit ratings. Regional disparities are of concern, both across, and within States. Even some of the faster growing States have pockets that have lagged behind. We should exchange notes on lessons of such unbalanced development. Faster and widespread development is the medicine for many of the ills of our economy, polity, and society. Let us strive to live up to the expectations of the people, especially of the poorest, who are also the majority of voters. Modern communications and media have raised people’s expectations. We cannot forget that many of the social, political, and communal tensions we see today are due to the non-realization of these expectations. The 73rd and 74th Amendments to our Constitution, five years ago, provide for a third tier government. Still, several States have not yet imbibed the spirit of these Amendments. There is an urgent need for genuine devolution of political, administrative, and financial powers to the Panchayati Raj institutions. If democracy works at the national and State level, it will surely work at the village level also. Rather, democracy at the national and State levels will only be enriched by extending it to the grassroots. All of us cherish peaceful and orderly progress. Good governance is essential for this. The rule of law is a prerequisite site for good governance. However, it is violated in many parts of the country. That should not be allowed. Submit