Telangana issues ordinance to amend FRBM Act to hike State’s borrowing limit

V Rishi Kumar Hyderabad | Updated on July 01, 2020 Published on July 01, 2020

Telangana Governor Tamilisai Soundararajan   -  Nagara Gopal@thehindu

The Telangana Government has promulgated ordinance No.3 of 2020 amending the Telangana Fiscal Responsibility and Budget Management Act, 2005, which enables it to increase its borrowing limit.

State Governor Tamilisai Sounderarajan passed the ordinance on Tuesday which will enable the State to increase the borrowing limit to 5 per cent from 3 per cent.

The move comes in the backdrop of a severe financial crisis due to the pandemic-induced lockdown resulting in a steep fall in the State’s own revenues.

The State Government described the situation as having an unprecedented impact on revenues. While the financial commitments have gone up due to allocations to various relief measures relating to Covid-19, revenues have fallen significantly. The Amendment will enable the State to raise funds by hiking the borrowing limit by 2 per cent above the permissible limit.

As per estimates, this will enable the state to raise an additional amount of up to ₹20,000 crore.

State Chief Minister K Chandrasekhar Rao had written to Prime Minister Narendra Modi and also mentioned during the virtual conferences with the Chief Ministers requesting the Centre to increase the borrowing limit under the FRBM Act to 5 per cent of the Gross State Domestic Product GSDP) from 3 per cent now.

Following similar requests from several other States, Finance Minister Nirmala Sitharaman had announced an increase in the borrowing limit to 5 per cent of GSDP from 3 per cent now. However, the Centre wanted the power to increase the borrowing limit to be linked to certain reforms in the State, including Ease of Doing Business, which several States are opposed to, especially during the unprecedented slowdown due to the lockdown.

Not only have the State’s own revenues taken a hit, but the Central allocations have also been affected due to the slowdown and lockdown, resulting in lower tax collections, and consequently lower devolution.

The ordinance says that due to the shortfall in the devolution of share of Central taxes, Telangana has been allowed an additional borrowing of ₹1,435 crore during 2019-20 over and above the normal fiscal deficit limit of 3 per cent as a one-time special dispensation. However, due to the current crisis, the limit needs to be raised this fiscal too. And hence, the ordinance.

Published on July 01, 2020
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