No restrictions on utilisation of additional borrowing by states

New Delhi, May 21: The Centre has not imposed any restrictions on states for utilisation of additional borrowing of 2 per cent and they are free to spend as per their requirements, a senior Finance Ministry official has said.

It is to be noted that the basic limit of 3 per cent remains unconditional, while only additional one per cent out of the two is linked to citizen centric reforms, the official said. Finance Minister Nirmala Sitharaman while announcing this on Sunday had said that an increase in borrowing limits will be subject to states taking citizen centric reforms, which are aimed at improving quality of service delivery to the public.

In order to help states to enhance their resource base in times of the COVID-19 crisis, the central government allowed them to go in for additional borrowing of 2 per cent, over and above the regular limit of 3 per cent of the GSDP, subject to certain conditions. "…the basic limit of 3 per cent remains unconditional.

Out of the additional borrowing of 2 per cent of GSDP, 0.50 per cent is untied and 1 per cent is subject to undertaking certain reforms by the state governments (0.25 per cent for each reform). Further, additional 0.50 per cent is allowed on undertaking at least any 3 suggested reforms," the official said.

It may be noted that, while the eligibility for part of the additional borrowing is conditional, its utilisation is fully untied.

The reforms suggested by the central government are citizen centric and aims at increasing the quality of service delivery to the public, the official added. These reforms are -- implementation of one nation one ration card system; district level and licensing reforms for ease of doing business; strengthening local bodies; and power sector reforms.

The additional borrowing will provide states extra resources of Rs 4.28 lakh crore to deal with COVID-19 crisis. States' net borrowing ceiling for 2020-21 is Rs 6.41 lakh crore (3 per cent of gross state domestic product).