Reforms are speeding up, states have borrowed additional Rs 1L cr: PM


In FY22, the Center set the borrowing limit for states at 4% of MSRP, with 50 basis points tied to investment targets.

By undertaking specified reforms stipulated by the Center, 23 states could borrow an additional Rs 1.06 lakh crore in FY21, Prime Minister Narendra Modi revealed in a blog posted on LinkedIn on Tuesday, and reported that as proof that there were many takers among the political economic states

“As a result, the total borrowing authority granted to states for 2020-2021 (conditional and unconditional) was 4.5% of the initially estimated GSDP,” Modi noted, adding that “the significant increase in the availability of resources was made possible by a central bhagidari ‘state approach amid the challenges posed by the pandemic to public finances.

Modi’s remarks came as the Center faces a barrage of criticism from opposition-led states for alleged usurpation of state domain in policy making and taxation. Some states opposed the terms of the reform and said the Centre’s approach was to impose its mandate on state governments, which defined a constitutional role in governance.

In May 2020, as part of the Aatmanirbhar Bharat package, the Center announced that states would be allowed to borrow more for 2020-2021. An additional 2% of GSDP or Rs 4.28 lakh crore (out of the usual 3%) was allowed, of which half or 1 percentage point was made conditional on the implementation of certain economic reforms.

India has often found that for various reasons, programs and reforms remain ineffective for years, Modi noted, adding that the results of the reform boost were a “pleasant departure from the past” where the Center and the states have come together to roll out pro-public reforms in a short period of time amid the pandemic. “This is a new model of ‘reform by conviction and incentive’,” he wrote.

In FY21, state governments borrowed a total of Rs 7.98 lakh through market borrowings, 26% more than borrowings for the corresponding period of the fiscal year. 20 (Rs 6.34 lakh crore), according to CARE Ratings.

States have resorted to higher market borrowing to meet their income deficits as a result of declining incomes due to containment disrupted economic activity even as spending increased to control and mitigate the crisis. impact of the Covid pandemic. The increase in borrowing has been accompanied by high cost borrowing for governments.

The average yield on government development loans (SDLs), which was previously 50 to 60 basis points higher than that on Union government securities, ranged from 50 to 120 bps in FY21 The southern state of Kerala, for example, had to pay up to 8.96% yield for 15-year bonds it issued in April 2020.

Kerala Finance Minister KN Balagopal recently told FE that power sector reforms are onerous for the state due to a potential increase in budget spending, and said they were not also not in tune with state government policies.
States were allowed in FY21 to raise additional funds equivalent to 0.25% of GSDP each following four specified reforms – implementation of a one-nation ration card system to help migrant workers to access subsidized food grains all over the country; the ease of doing business reform to ensure that business licenses are automatically renewed online on a non-discretionary basis; property taxes and charges on other public services such as water to increase the income of urban local communities; and electricity sector reforms to give farmers a direct benefit transfer instead of free electricity and measures to improve the finances of state-owned electricity distribution companies.

In FY22, the Center set the borrowing limit for states at 4% of MSRP, with 50 basis points tied to investment targets.

Do you know what is cash reserve ratio (CRR), budget bill, fiscal policy in India, expenditure budget, tariffs? FE Knowledge Desk explains each of these and in more detail on Financial Express Explained. Also get live BSE / NSE stock quotes, latest mutual fund net asset value, top equity funds, top winners, top losers on Financial Express. Don’t forget to try our free income tax calculator.

Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest news and updates from Biz.


About Author

Comments are closed.