States’ borrowing limit increased from 3{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} to 5{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58}: Nirmala Sitharaman

In a major relief to the state governments, Finance Minister Nirmala Sitharaman on Sunday announced an increase in the borrowing limit of the states from 3 per cent to 5 per cent for the financial year 2020-21 only.

The Centre’s move will give states extra resource of Rs 4.48 lakh, the minister said.

“The Centre has decided to accede to the request of the states of increasing the borrowing limit from 3 per cent to 5 per cent, for 2020-21 only,” she said.

In her fifth and the last trance of the coronavirus relief package, Nirmala Sitharaman said that the states’ net borrowing ceiling for 2020-21 is Rs 6.41 lakh crore, based on 3 per cent of the Gross State Domestic Product (GSDP).

She further said that the states have so far borrowed only 14 per cent of the limit authorised, of which 86 per cent of the borrowing remains unutilized. “However, they still are asking for a special increase.”

Nirmala Sitharaman said that the reform linkage will be four areas:

1: Universalisation of “One Pension One Ration Card’
2. Ease of doing business
3. Power distribution and Urban local body revenues

It was also said that a specific scheme will be notified by the Department of Expenditure on the following patter:

1. Unconditional increase of 0.05{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58}
2. 1{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} in 4 tranches of 0.25, with each tranche linked to clearly specified, measurable and feasible reform acton
3. Further 0.50 if milestones are achieved in at least three out of the four reform areas

Part of the borrowing will be linked to specific reform

1. To ensure the sustainability of the additional debt through higher future GSDP growth and a lower deficit
2. Promote the welfare of migrants and reduce leakage in food distribution
3. Increase job creation through investment
4. Safeguard the interest of farmers awhile making the power sector sustainable
5. Promote urban development, health and sanitation