Address at the Golden Jubilee Celebrations of Finance Commission

Finance Management towards Development of the Nation

I am indeed delighted to participate in the Golden Jubilee celebrations of Finance Commission of India. It gives me great pleasure to be here amidst the financial community of the Central and the State Governments who have assembled here to celebrate the 50th year of fiscal federalism in our country. I would like to congratulate the teams who have worked on various commissions on this important mission. Since the tasks of this Commission are very well defined and the right types of experts are working, I would like to share my thoughts based on my experiences of working with development programs and finance.

Vision for the Nation

The Prime Minister, in his Independence Day Address on 15th Aug. 2002 declared that India should become a developed nation by 2020. What does it mean? It means nation has to lift the 260 million people who are below poverty line and establish the well being of the people. Finance experts say, economic growth potential is possible by doubling GDP growth rate to about 9% and sustaining it for a few years. Is it not a difficult proposition? Recently, it was announced in the Conference of Governors by Deputy Chairman of Planning Commission that National Development Council has decided in the 10th Plan period to have a target of 8% GDP growth-rate and creation of 10 million jobs annually. There is a connectivity between developed India and the 10th plan focus and now the results of 12th Finance Commission.

How are the States Doing?

I have come across a document: 'How are the states doing - 2002?', a study made for Confederation of Indian Industry (CII). This document attracted me for the reasons that it has considered 13 parameters in deciding the performance of the 20 large states and 15 small states and Union Territories. Some of these parameters like core competency of the State, finance, personal finance, investment climate, consumer purchases and law and order are more relevant to the Finance Commission. The state GDP growth rate is one of the criteria in deciding the rating of A,B,C or D. Only four large states and six small states and UTs come under 'A' category. Remaining all the states and UTs come under 'B', 'C' and 'D' categories. Punjab, Kerala, Tamil Nadu and Maharashtra are in 'A' category. Small States & UTs of Delhi, Chandigarh, Daman & Diu, Goa, Pondicherry, Dadra & Nagar Haveli are in 'A' position with higher ratings.

However, when I visited about 18 states 3 Union Territories in the last eight months, I could notice that many States are burdened with high loan and debt. That means, short of revenue generation and Centre's support is sought for various programmes and projects. Most of the states could not balance the income and expenditure. It may be a typical national picture of the health of the state economy. It is important to note that from our Union Budget itself more than one quarter goes towards servicing the loans through interest. Hence there is a challenging task to the Finance Commission.

12th Finance Commission

The mission for the 12th Finance Commission is rightly defined as to suggest measures to restructure public finances - to restore budgetary balance - to reduce debt burdens and physical deficits, to generate surplus for capital investment to achieve macro economic stability. I consider the results of the 12th Finance Commission for the period 2005-2010 need to play a crucial role in the transformation process to become a developed nation. I am convinced that time has come to evolve an effective method of deployment and utilisation of funds in the Centre and States for the vision of developed India. Let us discuss some possible solutions to the issues.

SOME POSSIBLE SOLUTIONS Core Competence of India

Four possible solutions are suggested for generation of wealth and management for the nation. It is essential to study the core competencies of the country and to work on that. The nation's strength predominantly resides in its natural and human resources. In natural resources, India is endowed with a vast coast-line with marine resources and also oil wealth. In minerals, apart from conventional material resources, it is well-known that India has the largest deposits of titanium and beryllium and other metallic ores. India ranks among the top few nations having a rich bio-diversity. Technology and knowledge-based value addition for these natural resources would mean exporting value-added products rather than merely the raw materials. Use of IT for commercialisation and marketing can increase our outreach and speed enormously. Ancient knowledge is a unique resource of India for it has the treasure of a minimum of 5000 years of civilisation. It is essential to leverage this wealth for national well-being as well as to seek global presence for the nation. Civilisation that does not have the knowledge of technology or the technological nations without experience of civilization, cannot innovate newer economy.

Human resources, particularly with large young population, are unique core strength of the nation. This resource can be transformed through various educational and training programmes. Skilled, unskilled and creative manpower can be transformed into wealth generators particularly in the service sectors, agro industries etc. Knowledge-intensive industries can be generated out of our existing industries by injecting demand for high-level software/hardware, which would bring tremendous value addition. Wealth can be generated by injecting knowledge generators and technology generators to the natural and human resources. It is said, "the precious asset for a company or a country is the skill, ingenuity and imagination of its people. With globalisation, this will become more important because everybody will have access to world class technology and the key distinguishing feature will be the ability of people in different countries to use their imagination to make the best use of the technology". Indeed development and innovative use of multiple technologies with mission projects and transparent management structure will give a thrust to India for transforming into a 'developed nation'. Let us study the effect of integrated rural development in performance of economy.

Knowledge Powered PURA ( Providing Urban amenities in Rural Areas )

More than two third of our billion population live in the rural parts of India. The vision of transformation to a 'developed' India can only be realized if we launch a mega mission for empowering the rural people. My visits to the rural parts of India have confirmed that the problem of rural India depends on the connectivity. The connectivity that I refer to would include four components. Physical connectivity by providing roads in rural areas, electronic connectivity by providing reliable communication network and knowledge connectivity by establishing more professional institutions and vocational training centers. Schools with best infrastructure and teachers who love teaching, primary health centres, silos for storage of products and markets for promoting products, cottage industries could be made economically viable if they have to be established for such a cluster of village complexes. All this connectivity need to be done in an integrated way so that economic connectivity will emerge leading to self sufficiency. Such Model of establishing a circular connectivity among the rural village complexes will accelerate rural development process by empowerment. I am sure that removal of poverty will call for Providing Urban amenities in Rural Areas (PURA). The model envisaged is a habitat design that would improve the quality of life in rural places and make special suggestions to remove urban congestion also. Instead of village population coming to urban area, the reverse phenomenon has to take place. How is it possible? Knowledge powered village complexes have to be generated in good numbers in every State. That means, 20-30 villages linked through a circular road (10x6 kms) with highways bringing physical connectivity. This knowledge powered village complex will also have markets attracting urban business. IT enabled service industries can flourish in rural complexes as we can get land and building at very lower rates. The best technology and processes in the world with right skilled and motivated people will have to be deployed to realize such mega projects.

'Golden Quadrilateral' roads which are coming up with the national and state highways will assist to link these village clusters to the national network for increasing the market potential and economical development.

The PURA has to be a business proposition economically viable and managed by entrepreneurs and small scale industrialists, as it involve education, health, power generation, transport and management. Government's support should be in empowering such management agencies, providing initially economic support and finding the right type of management structure and the leaders to manage. I have already presented this model to the Parliament on the eve of the Budget Session -2003 for, there is a necessity of integrated financing of the rural development by both state and centre.

Towards IT Enabled Administration

What type of scenario will be there in India in the coming decades? As we are crossing the information society and leading to knowledge society, irrespective of rural or urban area, distance will be shortened using information technology. In such a situation an electronic connectivity should emerge between the various State and Central Government Departments for fully committed transparent administration. A networked database with real time updated data exchange will ensure speedy service to the people under one roof for all their government/non-government service requirement. Transparency will have to emerge in governance. This will assist in ensuring that the funds allotted for a particular project will fully reach the targeted population. I suggest that the Finance Commission as also the State Government Departments to have a full scale mission to computerize all your financial transactions. This would ensure that a lot of work in the Finance Departments is reduced, the errors are reduced and that management information is available at the click of the mouse. This would also ensure transparency in all our actions in Finance Departments. All the money allotment for the rural development with electronic connectivity, it is essential to establish fast response websites to provide funds allotted, source of income, expenditure pattern, transparent accountability. Since we are in democratic system, people should know about the way in which allotted funds are spent. We need to enable the people to get the right information. Finance Commission should also demystify the process of collection of tax, allocation and right use. In this context, let us discuss the importance of empowerment.

Empowerment

When a child is empowered by the parents at various phases of growth, the child gets transformed into a responsible citizen. When a teacher is empowered with knowledge and experience, good young human beings with value systems emerge. When an individual or a team is empowered with technology, transformation to higher potential for achievement is assured. When a leader of any institution empowers his or her people, leaders are born who can change the nation in multiple areas. When women are empowered, society with stability gets assured. When the political leaders of the nation empower the people through visionary policies, the prosperity of the nation is certain. When religions are empowered and become spiritual force, peace and happiness will blossom in peoples heart. Empowerment of various layers of management structure is indeed the best instrument to maximize the performance of a given fund to the developmental tasks. Such an empowered stage will lead to creation of enlightened citizens with value system resulting in prosperity of the nation.

Conclusion

Every state should aspire to become an economically developed state with peace and prosperity. If all the states develop then only nation can develop. Since the nation has got a vision to be developed, 12th Finance Commission through their recommendation should promote this national vision and empower the Centre and State governments in the transformation. Every state in our country will go through the best of the times and also difficult times. While giving thrust to current issues, not only Finance Commission but also all other Central Commissions need to consider long term programmes, also with same importance. Networking of rivers is one such long term programme which, if realized, will bring prosperity to the nation in terms of power generation, waterways, additional irrigation, drinking water, flood and drought control. Finance Commission can specifically address this problem.

While we discuss about the effective deployment of peoples resources, it is essential to know the dimensions of Non Performing Assets(NPA). It is also vital to initiate concrete steps to recover non-performing assets and to put them in developmental activities.

I am happy to note that a large number of State Finance Ministers, former Chairmen and Members of the Finance Commission and other connected officers will be meeting and discussing various issues relating to the devolution of financial resources. I am sure, the discussions will result in concrete recommendations on most of the important issues. The task before the Finance Commission is complex, as always. However, given the challenges which are being faced by the economy and by the different State Governments I am confident that the task is in able hands and that the Finance Commission will do full justice to all concerned while addressing the larger issues at hand. You have a great tradition of eleven Finance Commissions which have gone before you and it is time to remember the efforts put in by all the Finance Commissions and to redouble our efforts and to rededicate ourselves to the task at hand. I wish the 12th Finance Commission all the best and I have great pleasure in inaugurating the Golden Jubilee celebrations of Finance Commission.

My best wishes to you and May God bless you.