Blaming state governments for the deteriorating fiscal situation, the pre-budget Economic Survey on Wednesday warned that there was a need to cut fiscal deficit to bring down liabilities that have mounted to Rs 7,91,400 crore (Rs 7,914 billion), or 28.7 per cent of the GDP, by 2003-04.

The Economic Survey, tabled in Parliament by Finance Minister P Chidambaram, pointed to the total liabilities of states that surged by nearly 400 per cent in the last decade to Rs 7,91,400 crore in 2003-04 from Rs 1,60,077 crore in 1993-94.

Economic Survey 2003-2004: Complete Coverage

The states' liabilities surged by almost 15 per cent in the last fiscal from Rs 6,88,421 crore (Rs 6,884.21 billion) in 2002-03, it said.

As a percentage of GDP, the liabilities started rising from 17.8 per cent in 1996-97 to 28.7 per cent last fiscal.

Even though several initiatives have been undertaken by the Centre under the Tenth Plan period (2002-07), it said: "Few states have put in place fiscal responsibility legislations to strengthen the institutional backing for fiscal reforms."

The Survey pointed out that only Karnataka, Kerala, Punjab, Tamil Nadu and Uttar Pradesh have put in place strong reform initiatives to improve their fiscal situation.

Encouraging the states to undertake increased fiscal reforms, the Centre reiterated that states should implement various central incentives to cut down on their liabilities.

"An incentive fund of Rs 10,607 crore (Rs 106.07 billion) was earmarked to encourage states to implement fiscal reforms. So far, 23 states have drawn up medium term fiscal reforms programmes under the facility," the Survey noted.

It said there is provision for additional market borrowings under the States' Fiscal Reforms Facility for meeting the structural adjustment burden.