NEW DELHI The finance ministry Monday said it has simplified the process for additional borrowing by state governments following discussions during the 4th meeting of the NITI Aayog Governing Council earlier this month.
During the meeting, headed by Prime Minister Narendra Modi, some states had pointed out that the permission accorded by the Department of Expenditure, Ministry of Finance, is delayed due to bunching of proposals received from different states at different intervals into one consolidated approval.
The Union government, 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, the finance ministry said.
“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,” it said.
As per recommendation of the 14th Finance Commission, the states have the access to additional borrowing limits subject to fulfillment of certain conditions.
The fiscal deficit of all states is required to be anchored to an annual limit of 3 per cent of Gross State Domestic Product (GSDP).
The states are eligible for flexibility of 0.25 per cent over and above 3 per cent 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 per cent in the preceding year.
States are further eligible for an additional borrowing limit of 0.25 per cent 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 per cent of the revenue receipts in the preceding year.
The flexibility in availing the additional limit under either of the two options or both is 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.
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