Union Finance Ministry on May 17, 2020 agreed to demands from States to hike their borrowing limits from 3% to 5% of their GDP in light of the COVID-19 crisis, but on the condition that they implement specific reforms. This will give States extra resources of Rs. 4.28 lakh crores.
- States net borrowing ceiling for 2020-21 is Rs. 6.41 lakh crores, based on 3% of Gross State Domestic Product (GSDP) 75% thereof was authorised to them in March 2020 itself and timing is left to the States.
- States have so far borrowed only 14% of the limit authorised. 86% of the authorised borrowing remains unutilized.
- Nevertheless, states have been asking for special increase in borrowing from 3% to 5%. In view of the unprecedented situation, Centre has decided to accede to the request and increase borrowing limits of States from 3% to 5%, for 2020-21 only.
Conditions
According to the Union Finance Minister, part of the borrowing will be linked to specific reforms (including recommendations of Finance Commission) to:
- Ensure sustainability of the additional debt through higher future GSDP growth and lower deficits;
- Promote welfare of migrants and reduce leakage in food distribution,
Increase job creation through investment - Safeguard the interests of farmers while making the power sector sustainable, and
- promote urban development, health and sanitation
- Reform linkage will be in four areas: universalisation of ‘One Nation One Ration card’, Ease of Doing Business, Power distribution and Urban local body revenues.
