Only 5 states meet criteria for additional borrowings: Study

Only five states of Gujarat, Karnataka, Madhya Pradesh, Odisha and Telangana fit the bill to get additional borrowing limit benefit under the 14th Finance Commission recommendations, a study has said.
According to study conducted on 19 states by CARE Ratings, it was found that only these five states indicated revenue surplus while other states disqualified on prescribed norms.
"Therefore, only these five states are entitled for the additional borrowing limits over and above the fiscal deficit target of 3 per cent of Gross State Domestic Product (GSDP) provided they comply with other two conditions for fiscal flexibility," CARE Ratings said in a note.

The Union Cabinet earlier this month approved the 14th Finance Commission's recommendation on fiscal deficit targets and additional fiscal deficit to be allowed to states.
States can avail additional fiscal deficit if they do not have revenue deficit for the year in which borrowing limits are to be fixed and the immediately preceding year.
It has recommended fiscal deficit threshold limit of 3 per cent of Gross State Domestic Product (GSDP) for the states.

Over and above this, it has provided additional headroom up to 0.5 per cent of GSDP in a year subject to compliant conditions on 'debt to GSDP ratio' and 'interest payments to revenue receipts ratio'.

Among these five states, Karnataka, Madhya Pradesh, Odisha and Telangana have the interest payment to revenue receipts ratio less than 10 per cent as well as the debt-GSDP ratio of these four states falls below 25 per cent, which are as per the laid down conditions.
"Thus, these states are entitled for 0.5 per cent headroom over and above the fiscal deficit-GSDP target of 3 per cent", it said.
Gujarat, that enjoyed revenue surplus for last two years, has the debt-GSDP ratio of 24.20 per cent, below the prescribed limit of 25 per cent. However, the interest payment to revenue receipt ratio is above 10 per cent.

"As a result, Gujarat can enjoy the additional headroom of only 0.25 per cent, making the fiscal deficit-GSDP limit of 3.25 per cent for the state for 2016-17", it said.
CARE Ratings said other states did not comply with the revenue condition, some of the states are meeting with the other two conditions of interest payment to revenue receipt and debt to GSDP ratio.
Bihar, Chhattisgarh and Jharkhand will be eligible for 0.5 per cent flexibility in fiscal deficit as the ratios are below the ceilings, provided that they would have had the revenue surplus for the years under consideration, it said.

Goa, Himachal Pradesh, Kerala, Punjab, Rajasthan, and West Bengal did not comply with any of the prescribed criteria under the fiscal deficit flexibility rules, it added.
"Thus, it can be concluded that the additional headroom for borrowing, conditioned upon certain criteria, can only be enjoyed by a few states, considering the given set of selected states", it added further.