"The Plan panel has asked the states to take urgent action regarding fiscal correction. The states have also realised the seriousness of the situation", K C Pant, deputy chairman of the commission, told PTI in an interview.

"Fiscal situation of states has deteriorated considerably in the past few years, particularly so in the last two years", he said adding that states had resorted to borrowings heavily to meet their revenue expenditure that had out paced their earnings resulting in a high-level of interest liability.

Pant, who is undertaking mid-year review of the Ninth Five Year Plan (1997-2002), regretted that growing trend of offering tax concessions particularly sales tax for attracting greater investment was actually hurting the states.