States allowed to raise Rs 30,000 cr to revive demand

The central government today permitted states to raise Rs 30,000 crore through additional market borrowings by this March to enable them to tide over a lower revenue collection and help revive overall demand in the economy through an expenditure boost.

However, the demand for additional plan assistance for Rs 20,000 crore from the Centre was not met.

The Centre also announced a one-time assistance to states under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for purchase of buses to be used in their urban transport systems. Besides helping the cash-strapped states, the move will help automobile companies revive businesses hit by lower demand. The details of the assistance will be finalised later.

“To help maintain the momentum of expenditure at the state level, states will be allowed to raise in the current financial year additional market borrowings of 0.5 per cent of their gross state domestic product, amounting to about Rs 30,000 crore, for capital expenditure,” said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

With revenues under stress, the states had sought additional market borrowing to keep their plan expenditures for roads, irrigation, housing and other social sectors intact. The move will increase the fiscal deficit for states by 0.5 percentage points in the current fiscal ending March 2009.

Additional borrowing was one of the several demands put forth by the states before the central government.