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.
- Performance-Based Incentives:
- Pension Contributions to National Pension System (NPS):
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.
- Open Market Borrowings (OMB):
- Consequently, approvals have been granted for states to raise funds through various channels:
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.
