Consider the following statements: 1. The normal net borrowing ceiling for states is fixed at 3 percent of the Gross State Domestic Product (GSDP). 2. States are allocated an extra 0.5 percent of GSDP in borrowing capacity as a performance-based incentive for power sector reforms. Select the correct statements using the codes given below: |ForumIAS

Q. Consider the following statements:
1.The normal net borrowing ceiling for states is fixed at 3 percent of the Gross State Domestic Product (GSDP).
2.States are allocated an extra 0.5 percent of GSDP in borrowing capacity as a performance-based incentive for power sector reforms.
Select the correct statements using the codes given below:

[A] 1 only

[B] 2 only

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: C

Notes:

Explanation –

Statements 1 and 2 are correct. The normal net borrowing ceiling for states is fixed at 3 percent of the Gross State Domestic Product (GSDP). This is the base level set by the 15th Finance Commission as part of their recommendations for the 2023-24 financial year. This means that states can generally borrow up to 3% of their GSDP without requiring additional approvals or incentives. However, it varies from year to year as the Finance Commission determines the borrowing limit for each state based on several factors, including the state’s revenue and fiscal management.

In addition to the normal borrowing ceiling, states can be allocated an extra 0.5% of GSDP in borrowing capacity as an incentive for undertaking power sector reforms. This incentive is offered by the Ministry of Power, and states that meet the reform criteria can avail this additional borrowing limit.

Source: Forum IAS

Post-Mains Strategy Session by Mr. Ayush Sinha | ForumIAS