Finance Minister Nirmala Sitharaman said on Sunday the Central government has increased borrowing limit for states from 3 to 5 per cent of gross state domestic product (GSDP) for the current financial year 2020-21, giving them additional resources of Rs 4.28 lakh crore to soak the impact of COVID-19 pandemic.
She said states are at the forefront of bearing the impact of coronavirus crisis and subsequent countrywide lockdown. The increase in their borrowing limits will promote the welfare of migrant workers who are going back to villages, increase job creation in rural and semi-urban areas and safeguard the interests of farmers.
Sitharaman said the states were already allowed to borrow 75 per cent of their authorised limit from March, of which only 14 per cent has been borrowed. The states' net borrowing ceiling for the current fiscal is Rs 6.41 lakh crore based on 3 per cent of GSDP.
"Of this, 86 per cent of authorised borrowing remains unutilised. Still, states have been asking for a special increase in borrowing to 5 per cent from 3 per cent and we have allowed it only for FY21," she said.
"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.
However, the Finance Minister said that the borrowings will be linked to specific reforms which will include Finance Commission recommendations.
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.
Sitharaman said the first 0.5 per cent (that is 3.5 per cent overall) will be given unconditionally. "The subsequent 1 per cent will be released in four tranches of 0.25 per cent each linked to clear, specific, measurable and feasible reforms."
Besides, a further 0.5 per cent will be given as incentive if milestones in at least three out of four reforms are achieved, she added. Hence, the additional borrowing limit has been linked with initiating reforms by the states.
( With inputs from ANI )