No restrictions on utilisation of additional borrowing by states, says official; to get extra resources of Rs 4.28 lakh cr

New Delhi: The Centre has not imposed any restrictions on states for utilisation of additional borrowing of 2 percent and they are free to spend as per their requirements, a senior Finance Ministry official has said.

It is to be noted that the basic limit of 3 percent remains unconditional, while only additional one per cent out of the two is linked to citizen centric reforms, the official said.

Finance Minister Nirmala Sitharaman while announcing this on Sunday had said that an increase in borrowing limits will be subject to states taking citizen centric reforms, which are aimed at improving quality of service delivery to the public.

In order to help states to enhance their resource base in times of the COVID-19 crisis, the Central government allowed them to go in for additional borrowing of 2 percent, over and above the regular limit of 3 percent of the GSDP, subject to certain conditions.

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“…the basic limit of 3 percent remains unconditional. Out of the additional borrowing of 2 percent of GSDP, 0.50 percent is untied and 1 percent is subject to undertaking certain reforms by the state governments (0.25 percent for each reform). Further, additional 0.50 percent is allowed on undertaking at least any 3 suggested reforms,” the official said.

It may be noted that, while the eligibility for part of the additional borrowing is conditional, its utilisation is fully untied. The reforms suggested by the Central government are citizen centric and aims at increasing the quality of service delivery to the public, the official added.

These reforms are – implementation of one nation one ration card system; district level and licensing reforms for ease of doing business; strengthening local bodies; and power sector reforms.

The additional borrowing will provide states extra resources of Rs 4.28 lakh crore to deal with COVID-19 crisis.

States’ net borrowing ceiling for 2020-21 is Rs 6.41 lakh crore (3 percent of gross state domestic product).