Centre simplifies procedures for extending fiscal deficit limit

The Central Government on Monday simplified the process for states to stretch their fiscal deficit limit.

This simplification process is in continuation of the Central Government's reform through simplified consent mechanism of August 2016 which mandated states to have their borrowing calendar for April-December (9 months) as per their cash flow projections based on Central Government consent conveyed to them.

As per recommendation of the 14th Finance Commission, the states have the access to additional borrowing limits subject to fulfilment of conditions mentioned therein.

Fiscal deficit of all states will be anchored to an annual limit of three per cent of Gross State Domestic Product (GSDP). The states will be eligible for flexibility of 0.25 per cent over and above this 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 will be 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 will be 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.

During the fourth Meeting of the Governing Council of NITI Aayog on June 17, some States pointed-out that the permission accorded by the Department of Expenditure, Ministry of Finance, to eligible States were sometimes delayed due to bunching of proposals received from different States at different intervals into one consolidated approval.

The Central 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.

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 is expected that this will further enhance transparency and predictability in the borrowing calendar and boost capital expenditure in eligible States.