Fiscal deficit of States as a proportion of GDP increased from 3.3 per cent in 1990-91 to 5.1 per cent in the revised estimates for 2003 – 04 . Revenue deficit too witnessed a sharper rise to 2.6 percent of the GDP as per the revised estimates for 2003-04.
The factors responsible for such a deterioration are many and include factors, such as, growing burden of: a) interest payments, b) pension liabilities, and c) administrative expenditure, mounting losses of State owned public enterprises, inappropriate user charges, increased contingent liabilities and deceleration in Central transfers. Such fiscal stress seriously erodes the States’ capability to discharge its paramount responsibility for developing social and economic infrastructure.