India / Borrowing limit of states raised from 3% to 5% of state GDP for 2020-21: FM

New Delhi: In a major relief to the state government's, Union Finance Minister Nirmala Sitharaman on Sunday announced that the Centre has increased borrowing limits of states from 3 per cent to 5 per cent of Gross State Domestic Product (GSDP) for 2020-21.

As part of the fifth tranche of Prime Minister Narendra Modi's 'Atma Nirbhar Abhiyan' vision worth Rs 20-lakh Crore, Nirmala Sitharaman said that just like Centre, States have also faced sharp decline in revenues due to the corona induced lockdown.

"We recognise that like the Centre, states also facing sharp decline in revenues. Despite this, we have extended generous support to states in this hour of need," Sitharaman said.

While interacting with media, she told that despite Centre's stressed resources, the government devolved taxes of Rs 46,038 in April as per the Budgetary estimates. Revenue deficit grants of Rs 12, 390 crore was given to states to carry out their operations smoothly during the COVID-19 pandemic. She further mention that funds under the State Disaster Relief Fund (SDRF) were released in advance (Rs 11,092 crore) in first week of April.

Elaborating further on the initiatives taken by the Central government to help States, Minister said that "at the Centre's request, the RBI has increased the ways and means advance limit of states increased by 60 percent. Number of days states can be in continuous overdraft position increased from the earlier 14 days to 21 days now. Number of days states can be in overdraft in a quarter increased from 32 to 50 days."

Further in her measures list on supporting the State systems, Sitharaman said that States have a net borrowing ceiling. They can borrow upto 3 % of state's GSDP. States have so far borrowed only 14 per cent of the limit which is authorised to them, leaving 86 per cent of the limit unutilised.

"To assist the States, we have now allowed them to borrow 75% in the first half. The centre has decided to increase borrowing limits of states from 3 per cent to 5 per cent of Gross State Domestic Product (GSDP) for 2020-21," Nirmala Sitharaman announced.

As claimed by the Finance Ministry, the move is expected to give an additional Rs 4.28 lakh crore to states. Moreover, to promote State level reforms, part of the borrowing will be linked to specific reforms like increasing job creation through investment and promoting urban development, health and sanitation.