Finance Ministry simplifies process for additional borrowing by states

States are eligible for 0.25% over and above the 3% 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% in the preceding year

The finance ministry has simplified the process for additional borrowing by state governments following discussions during the fourth 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 and the Ministry of Finance was delayed due to bunching of proposals received from different states at different intervals into one consolidated approval.

The government decided to simplify the process of approval of such additional borrowing limits requested by states, the finance ministry said in a statement on Monday. “It will process each proposal along with complete information independently as and when received, in contrast to the earlier process of bunching all proposals into a single proposal,” it said.

According to the recommendations of the 14th Finance Commission, states can borrow more if they fulfill certain conditions. Fiscal deficit of all states is required to be anchored to an annual limit of 3 per cent of gross state domestic product (GSDP).

States are eligible for 0.25 per cent over and above the 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 also 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.