Big relief: Centre raises borrowing limit of States from 3 per cent to 5 per cent of GSDP for FY21

V Rishi Kumar Hyderabad | Updated on May 17, 2020

Move will provide States extra resources of ₹4.28 lakh crore

The Centre’s decision to raise States’ borrowing limit to 5 per cent from 3 per cent of GSDP for FY21, has come as a major relief for Telangana, Andhra Pradesh and West Bengal. These are among the States that have been pleading for a hike in the cap on borrowings prescribed under the Fiscal Responsibility and Budget Management (FRBM) Act.

In fact, Telangana Chief Minister K Chandrasekhar Rao has been asking for not just borrowing flexibility but ‘helicopter money’ under current unprecedented times. The hike in cap provides the much-needed flexibility for States to raise additional funds.

Responding to requests from the States and considering the current financial crisis, Finance Minister Nirmala Sitharaman has provided the much pleaded relief to them by enhancing the borrowing limit.

In the fifth and the last stimulus package announced on Sunday, Sitharaman said, “In view of the unprecedented situation, the Centre has decided to accede to the (States) request and increase borrowing limits of States from 3 per cent to 5 per cent, for 2020-21 only. This will give States extra resources of ₹4.28 lakh crore.”

She said: “the States net borrowing ceiling for 2020-21 is ₹6.41 lakh crore, based on 3 per cent of Gross State Domestic Product (GSDP). 75 per cent thereof was authorised to them in March 2020 itself and timing is left to the States. The States have, so far, borrowed only 14 per cent of the limit authorised. 86 per cent of the authorised borrowing remains unutilised. Nevertheless, States have been asking for special increase in borrowing from 3 per cent to 5 per cent.”

Mentioning that the Centre, like the States, has faced a sharp decline in revenues, she said, “Despite this the Centre has consistently extended generous support to the States in this hour of need. Devolution of taxes (₹46,038 crore) in April was given fully as if Budget Estimates were valid, even though actual revenue shows unprecedented decline from Budget Estimates.”

The Finance Minister further said that the Centre extended the revenue deficit grants to States (₹12,390 crore) on time in April and May, despite the Centre’s stressed resources.

Sitharaman also highlighted the advance release of SDRF (₹11,092 crore) funds in the first week of April and release of ₹4,113 crore from the Health Ministry for direct anti-Covid activities.

In addition, at the Centre’s request, the RBI has increased “Ways & Means Advance limits of States by 60 per cent. Also, the number of days the State can be in continuous overdraft has been increased from 14 to 21 and the number of days the State can be in overdraft in a quarter has been increased from 32 to 50 days.”

Published on May 17, 2020

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