4 SOCIAL SCIENTIST through deficit financing while the State Governments are required to run an "overdraft" with the RBI for that purpose. The Central Government issues Treasury Bills to raise short-term funds to meet maturing current obligations. When it is unable to liquidate these Treasury Bills, the Government of India could dictate to the RBI to print currency notes to the extent of the outstanding Treasury Bills and place the amount at its disposal. This is a measure of the budgetary deficit of the Government of India. It is interesting to note that there is no legal or other restriction on the extent of deficil financing resorted to by the Central Government. It is not required to pay back the principal. Nor is any interest charged. Subject to its concern for stability, the Centre has an unlimited source of costless funds to cover its gap for rupee resources. No such deficit funding facility is made available to the State Governments though the RBI is as much a banker of the State Governments as it is of the Centre. All that the RBI is required to do is to extend temporary accommodation by way of "overdrafts" within the limits set by the Centre. Normally these overdrafts are to be cleared by the concerned State Governments within the financial year. Pressed by financial stringencies, the State Governments have from time to time resorted to overdrafts from the RBI over and above the authorised limits. Hence, they are called "unauthorised overdrafts". Overdrafts outstanding at the end of a financial year are, by and large, a measure of the gap in resources most of which cannot be regarded as temporary. It is a residual gap after taking into account all the incomings in the financial year. As such, unredeemed overdrafts are symptomatic of the basic imbalance between need and availability of resources. The State Governments by themselves cannot liquidate outstanding overdrafts without cutting deeply into their committed or developmental expenditures. Sometimes, the Centre assumes responsibility for the liquidation of the overdrafts. Often, they convert them into medium or long-term loans involving burden of repayment and debt servicing in the future. Sometimes, they are adjusted against future payments of Central assistance to State Plans. In both cases, it would only postpone the day of reckoning by reducing the net resources at the disposal of the States to meet the rising tide of public expenditures. Thus, overdrafts represent the chronic imbalance between resources and responsibilities of the State Governments. Eminent men of public affairs like Santhanam,2 Rajamannar,3 Setalvad4 and so on, who were aware of the root causes of the progressive weakening of the fiscal foundations of the States, have suggested various measures for a drastic restructuring of the fiscal federal relations in India. Most of the earlier Finance Commissions have also drawn our attention to the basic maladies in the Centre-State