INCREASED BORROWING ALLOWANCES FOR STATES

Print

TAG: GS 2: POLITY AND GOVERNANCE

THE CONTEXT: The Finance Ministry has revealed that states in India may avail themselves of approximately ₹2.04 lakh crore as supplementary borrowing limits this fiscal year, surpassing their regular net borrowing limits.

EXPLANATION:

• This additional borrowing capacity has been granted to support specific financial obligations and incentivize reform-driven initiatives.

BREAKDOWN OF ADDITIONAL BORROWING ALLOWANCES

• Pension Liability Relief
  • Pension Contributions to National Pension System (NPS):
    • 22 states have been authorized to raise nearly ₹61,000 crore in additional borrowings beyond their standard net borrowing ceilings (capped at 3% of Gross State Domestic Product – GSDP as of October 27).
    • This extra borrowing privilege is extended to states that have fulfilled their pension liabilities by contributing to the National Pension System, which manages government employee retirement savings.
  • Power Sector Reforms
    • Performance-Based Incentives:
      • Another provision enables states to raise over ₹1.43 lakh crore this fiscal year, in line with the Ministry of Power’s recommendations.
      • This borrowing capacity is linked to the Fifteenth Finance Commission’s suggestion to grant states an extra borrowing space equivalent to 0.5% of their GSDP.
      • This incentive aims to reward states that implement reforms in the power sector, fostering improvements in operational and economic efficiency.

OVERVIEW OF NET BORROWING CEILINGS

• Standard Net Borrowing Ceiling:
  • The regular net borrowing limit for states stands at ₹8,59,988 crore for the current fiscal year.
  • This limit is in accordance with the recommendations set forth by the Fifteenth Finance Commission.
• Approved Borrowings:
  • Consequently, approvals have been granted for states to raise funds through various channels:
    • Open Market Borrowings (OMB):
      • States have been allowed to raise ₹6.99 lakh crore via open market borrowings.
    • Negotiated Loans:
      • Additionally, approvals for negotiated loans amount to ₹69,371 crore.

IMPLICATIONS AND FINANCIAL FLEXIBILITY

• The increased borrowing allowances offer states crucial financial flexibility, empowering them to address specific financial commitments, particularly pertaining to pension liabilities managed through contributions to the National Pension System.
• Moreover, the borrowing incentives tied to power sector reforms underline the government’s emphasis on encouraging states to implement measures that enhance the efficiency and performance of this critical sector.
• By surpassing the standard net borrowing limits, states can access additional financial resources, albeit tied to specific criteria and reform-oriented initiatives, enabling them to bolster fiscal capabilities and potentially enhance infrastructure development and service delivery within their regions.

SOURCE: https://www.thehindu.com/business/states-can-borrow-an-extra-2-lakh-crore-this-year/article67655189.ece/amp/