New Delhi: Government today (Jul 20, 2004) said that the revenue of States as a percentage of GDP (Gross Domestic Product) has come down by 0.25 per cent during the last five years after the implementation of 5th pay commission recommendations in early 1990s had left State finances in a crisis.

Replying to supplementaries during Question Hour in Rajya Sabha, Finance Minister P Chidambaram said after the revenue deficit of States had shot up to 2.79 per cent of GDP in 1999-2000, it had come down to 2.56 per cent in 2003-04.

"No doubt the 5th pay commission had a severe impact on State finances but that is behind us," he said adding on an average in the last five years, the revenue deficit had come down by 0.25 per cent.

The Minister said that the Centre had initiated fiscal reform facilities and accelerated power development and reform facilities besides the urban development incentive scheme during the last five years and this had helped the States improve their finances.

Chidambaram hoped that the States would implement Value Added Tax (VAT) regime to replace sales tax from April 1, 2005.

He said initiatives of the NDA (National Democratic Alliance) Government in asking States to control their revenue expenditure and non-plan expenditure besides improving their tax administration were good policies and would be carried forward by UPA (United Progressive Alliance) Government.

He said the RBI had also recommended various measures for improving the fiscal health of States in its reports.