Economy

Centre extends deadline for States to complete reforms to avail additional borrowing

Our Bureau New Delhi | Updated on December 16, 2020

Centre on Wednesday extended the deadline till February 15 for States to implement reforms to be eligible for additional borrowing.

These four reforms are implementation of One Nation One Ration Card system; ease of doing business reform; urban local body/utility reforms; and power sector reforms.

As part of Atmanirbhar Bharat, States have been permitted to raises additional 2 per cent over and above 3 per cent of the GSDP under Fiscal Responsibility and Budget Management (FRBM) Act.

However, to avail the additional 2 per cent, some conditions have been prescribed. The first 0.5 per cent can be borrowed without any condition, while for the next 0.5 per cent States need to go for ‘Option 1’ of the mechanism to meet GST compensation shortfall. For the remaining 1 per cent, each of four reform measures will enable 0.25 per cent of additional borrowing — making a total of ₹2.14 lakh crore available. Earlier, States were given a time line of December 31 to complete reforms.

So far, nine States have implemented the One Nation One Ration Card system, four States have completed the ease of doing business reform and one State has done the urban local body/utility reforms. Additional borrowing permission of ₹40,251 crore has been granted to these States. Extention of the date for completion of reforms is likely to motivate other “States also to complete the reform process expediously and avail the linked financial benefits,” a statement issued by the Finance Ministry said.

In view of the resource requirement to meet the challenges posed by the Covid-19 pandemic, the Centre decided in May to raise the borrowing limit of the States. This was aimed at enabling the States to mobilise additional financial resources of up to ₹4.27 lakh crore. The purpose was to motivate the States to carry out reforms in various citizen-centric areas, a statement issued by the Finance Minister said.

ALSO READ: Financial sector players suggest ‘Aatmanirbhar bonds’, special tax breaks for insurance in upcoming budget

Capex benefit

The second benefit available to the States on completing three out of the four reforms is additional funds assistance under the ‘Scheme for Financial Assistance to States for Capital Expenditure’. Under the scheme, an amount of ₹2,000 crore is earmarked for the States that will complete at least three out of the four stipulated reforms.

The scheme was announced by the Finance Minister on October 12 as part of Aatmanirbhar Bharat 2.0. It is aimed at boosting capital expenditure by State governments who are facing a difficult financial environment this year. A total amount of ₹12,000 crore has been earmarked by the Central government of India under this scheme. According to the Statement, capital expenditure has a higher multiplier effect, enhancing the future productive capacity of the economy, and results in a higher rate of economy growth.

ALSO READ: Centre passes on 6th instalment of borrowing to States to meet GST compensation shortfall

Published on December 16, 2020

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