As per recommendation of 14th Finance Commission, the States have access to additional borrowing limits subject to fulfillment of conditions. Fiscal deficit of all States will be anchored to an annual limit of 3 % of Gross State Domestic Product (GSDP). The States will be eligible for flexibility of 0.25 % over and above this for any given year for which the borrowing limits are to be fixed if their debt-GSDP ratio is less than or equal to 25 % in the preceding year. States will be further eligible for an additional borrowing limit of 0.25 % of GSDP in a given year for which the borrowing limits are to be fixed if the interest payments are less than or equal to 10 % of the revenue receipts in the preceding year. The flexibility in availing the additional limit under either of the two options or both will be available to a State only if there is no revenue deficit in the year in which borrowing limits are to be fixed and the immediately preceding year.
During the 4th Meeting of Governing Council of NITI Aayog, some States pointed-out that permission accorded by Department of Expenditure, Ministry of Finance, to eligible States were sometimes delayed due to bunching of proposals received from different States at different intervals into one consolidated approval. The UOI, keeping in view its policy for cooperative federalism, has henceforth decided to simplify the process of approval of such additional borrowing limits requested by States. It will process each proposal along with complete information independently as and when it is received in contrast to the earlier process of bunching all proposals into a single proposal.
This simplification process is in continuation of the Governments’ reform through simplified consent mechanism, which mandated States to have their borrowing calendar for as per their cash flow projections based on Governments’ consent conveyed to them. It is expected that this will further enhance transparency and predictability in the borrowing calendar and boost capital expenditure in eligible States.
Ministry of Finance