The states have shown only a marginal improvement in their revenue positions despite their attempts, over the last three years, to extricate themselves from the fiscal mess they are in. Going by the figures, it seems they are a long way off.

Under the Medium Term Fiscal Reforms Programme, initiated by the finance ministry in July 2000, the states were set an annual target of a 5 percentage points reduction in the ratio of revenue deficit to revenue receipts.

The average ratio for the 29 states is down from 26.02 in 1999-2000 to 17.17 in 2002-03 - a mere 8.85 percentage points. This is nearly half the targeted 15 percentage points reduction for the last three years.

The Centre had set aside Rs 10,607 crore (Rs 106.07 billion) for the programme, which was launched after the Eleventh Finance Commission submitted its report. The fund was supposed to act as an incentive for the states to introduce reforms in the four areas of Budget, fiscal management, power and public sector undertakings.

A mid-term review of the fiscal reforms programme, undertaken by the finance ministry, has revealed sharp differences in the changes in the deficit ratios of various states. While the average figure for all the states was 27 per cent in 1999-2000, it was 90 per cent for West Bengal and 10 per cent for Tripura.

The finance ministry has now realised that prescribing a standard 5 percentage points reduction for all states was a design failure. It might as well have prescribed a 2 percentage points reduction for Tripura and an 18 percentage points reduction for West Bengal. The ministry may in due course of time try to rectify this anomaly in design.

The review has also shown that while larger states like Karnataka, Rajasthan, West Bengal and Punjab have not made much headway, smaller ones like Chattisgarh, Sikkim, Kerala and Goa have shown continuous improvement.

Among the 29 states, eight have recorded a consistent improvement in their revenue positions over the last three fiscals. But, the situation in Gujarat, Himachal Pradesh, Jharkhand and Uttaranchal has steadily deteriorated. In fact, these states are yet to draw up a roadmap for reforms.

Of the 29 states, 21 have chalked out a Medium Term Fiscal Reforms Programme. Thirteen states have signed memorandums of understanding with the finance ministry to meet time-bound targets.

Among the major areas of concern are mounting non-Plan revenue expenditure, like wages and pensions, a burgeoning debt burden and an increased outgo in interest payments.