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FM announces increase in states’ FY21 borrowing limit to 5% from 3%

The fifth tranche announced on May 17 is focused on health and education, businesses in COVID-19, decriminalisation of Companies Act, Ease of doing business, PSE and related matters, state governments and resources related to states.

May 17, 2020 / 03:21 PM IST

Finance Minister Nirmala Sitharaman said the Centre has increased borrowing limits for states to 5 percent from 3 percent for FY21.

She added that states were already allowed to borrow 75 percent of their authorised limit from March itself, of which only 14 percent has been borrowed. States net borrowing ceiling for FY21 is Rs 6.41 lakh crore, based on 3 percent of gross state domestic product (GSDP).

“Of this, 86 percent of authorised borrowing remains unutilised. Nevertheless, states have been asking for special increase in borrowing to 5 percent from 3 percent and we have allowed it only for FY21,” she stated.

“In view of the unprecedented situation, the Centre has decided to accede to the request. This will provide states extra resources of Rs 4.28 lakh crore,” she added.

She specified that the borrowings will be linked to specific reforms, which will include Finance Commission recommendations.

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“This is to ensure sustainability of the additional debt through higher future gross state domestic product (GSDP) growth and lower deficits; promote welfare of immigrants 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,” she enumerated.

The 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.

“A specific scheme will be notified by Department of Expenditure for this,” she added.

The Finance Minister explained that the first 0.50 percent (i.e 3.5 percent) will be given unconditional. After which, subsequent 1 percent (i.e. 4 percent) will be released in four tranches of 0.25 percent, each linked to “clear, specific, measurable and feasible reforms.”

And a further 0.50 (4.5 percent) percent if milestones in at least three out of four reforms are achieved.

Follow our LIVE coverage of the FM's presser

Finance Minister Sitharaman on May 17 announced the fifth tranche and final tranche of the Rs 20 lakh crore financial package announced by Prime Minister Narendra Modi on May 12. The fifth tranche focuses on seven steps:

- Health & education
- Business and COVID-19
- De-criminalisation of Companies Act
- Ease of Doing Business
- Public sector enterprise related matters
- State governments and resources related to states

Moneycontrol News
first published: May 17, 2020 12:48 pm