States can borrow an extra ₹2 lakh crore this fiscal year

Source- This post is based on the article “States can borrow an extra ₹2 lakh crore this year” published in “The Hindu” on 19th December 2023.

Why in the News?

The Finance Ministry has allowed states to access approximately ₹2.04 lakh crore overall as additional borrowings beyond their net borrowing limits for the current fiscal year.

What is the recent decision taken by the Centre?

1) The Centre has allowed extra borrowing of Rs 60,876.80 crore to States, on top of their net borrowing ceilings of 3% of Gross State Domestic Product (GSDP).

2) 22 states have been granted this additional borrowing for meeting pension liabilities under the National Pension System (NPS).
Note- The NPS has been overseeing government employee retirement savings since 2004.

What are the borrowing ceiling for States?

1) The normal net borrowing ceiling for states is fixed at 3 per cent of the Gross State Domestic Product (GSDP).
– For FY24, this is equivalent to Rs 8,59,988 crore as recommended by the Fifteenth Finance Commission.

2) States are allocated an extra 0.5 per cent of GSDP in borrowing capacity as a performance-based incentive for power sector reforms.
– According to this, States are eligible to borrow Rs 1.43 lakh crore on the recommendation of the power ministry for FY24.

What are the Related Constitutional provisions?

Article293(3) -A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government

– In Practice, the Centre has been utilizing this authority following the guidance provided by the Finance Commission.

UPSC Syllabus- Indian Economy