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The Centre has simplified the process for granting an additional fiscal deficit limit to the eligible states. “The Union Government of India, keeping in view its policy for cooperative federalism, has henceforth decided to simplify the process of approval of such additional borrowing limits requested by states. It will process each proposal along with complete information independently as and when it is received, in contrast to the earlier process of bunching all proposals into a single proposal,” a Finance Ministry statement issued on Monday, said.
Currently, states can borrow up to 3 per cent of their fiscal deficit limit but an additional limit can be permitted subject to certain conditions. They can have flexibility of 0.25 per cent over and above this for any given year, for which the borrowing limits are to be fixed if their debt-GSDP ratio is less than or equal to 25 per cent in the preceding year.
Not only this, states will be further eligible to an additional borrowing limit of 0.25 per cent of GSDP in a given year, for which the borrowing limits are to be fixed if the interest payments are less than or equal to 10 per cent of the revenue receipts in the preceding year. The flexibility in availing of the additional limit under either of the two options or both will be available to a state only if there is no revenue deficit in the year in which borrowing limits are to be fixed and the immediately preceding year. Approval for additional borrowing has to be taken from the Centre.
The decision to simplify the process was taken after the states, during the NITI Aayog’s meeting on June 17, pointed-out that the permission accorded by the expenditure department under the Finance Ministry were sometimes delayed. It happened due to bunching of proposals received from different states at different intervals, into one consolidated approval.
This simplification process is in continuation of the Central Government’s reform through a simplified consent mechanism of August 16, 2016, which mandated states to have their borrowing calendar for April-December (9 months) in line with their cash flow projections based on the Centre’s consent conveyed to them. It is expected that this will further enhance transparency and predictability in the borrowing calendar and boost capital expenditure in eligible states.
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