Inaugurating a seminar on "Issues before the Eleventh Finance Commission" here on Tuesday, the minister said that for long a system of fiscal dependence of states on the centre and of the local bodies on the states had been perpetuated and the gap-filling approach of the past was no longer sustainable. He added that "this should gradually be replaced with an assured minimum support approach so as to incentivise internal resource generation."

While expressing concern over the intractable problem of fiscal deficit growing over the last two decades, Sinha said that public finance was allowed to get completely distorted over a period of time. He also underlined the need for a national consensus for addressing critical issues like subsidies, user charges andpublic-distribution system.

The finance minister also made a case for making revenue deficit the central concern of fiscal policy. As far as use of borrowed fund was concerned, he said, for long the governments, both at centre and states, have been shying away from legitimate taxation and instead restoring to the softer option of more and more borrowing. He added that "if those are deployed for creation of income-generation quality assets, then such a borrowing is prudent."However, borrowing to finance present consumption for a long period was a prescription for disaster, the minister emphasised. He added that "we have to address the inter-generational equity issue in fiscal policy." Sinha also stressed that, "we have no right to borrow for consumption and burden the future generations with debt without leaving durable assets for them."

Elucidating the undesirable consequences of the implementation of fifth pay commission, Sinha said that, in future, there should be wider discussions between the centreand state governments to ensure consensus on the decisions to be taken for implementation of the pay commission.

In his key note address, Andhra Pradesh governor C Rangarajan shared the concern expressed by speakers on growing fiscal deficit and said that the fiscal responsibility must be shared both by the centre and the states. He added that both levels of government should be required to maintain certain ratio of revenue to GDP and stay within the prescribed fiscal deficit. Rangarajan further said that indiscriminate subsidisation has been the practice and added "common consensus and political courage was required to overcome this".

He urged the Finance Commission to examine whether certain constitutional changes were necessary with respect to rationalising indirect taxes.Emphasising the need to have a normative view about the revenues and expenditure of both the centre and the states, Rangarajan said, the idea should be to devise a formula that redress disadvantage but penalised imprudence. Agreeingto the concern expressed on the rising fiscal deficit, the chairman of the conference, former finance minister Manmohan Singh, said that in the medium term, a perspective adjustment path should be worked out to keep the revenue deficit at a desirable level.