New Delhi: The Centre on Thursday announced a hike in the borrowing limit of five states who have successfully implemented One Nation One Ration Card system that is aimed at alleviating the suffering of interstate migrant workers as it will allow them to avail subsidised ration in a destination state.
The department of expenditure, the nodal department within the ministry of finance that deals with the issue, Thursday allowed five states, Andhra Pradesh, Telangana, Goa, Karnataka and Tripuar to raise additional resources of Rs 9,913 crores through open market borrowings (OMBs).
Five states to benefit from hike in the borrowing limit
Of the total five States, three States - Karnataka, Goa and Tripura - are ruled by NDA governments.
The biggest beneficiary of an increased borrowing limit will be Karnataka whose borrowing limit has been enhanced by Rs 4,509 crore. Borrowing limit of Andhra Pradesh and Telangana has been hiked by Rs 2,525 crores and Rs 2,508 crores respectively.
The department of expenditure has hiked the borrowing limit of Goa by Rs 223 croes and Tripura by Rs 148 crores.
Read: GST: 21 States prefer the first loan option to meet revenue shortfall
The Centre’s decision to reward performing states will go a long way in encouraging other states to follow suit. Cash starved States, whose revenue collection has been severely hit due to Covid-19 lockdown measures, have been demanding a hike in their statutory borrowing limits under the FRBM Act to tide over the difficult situation.
While the Centre and the Reserve Bank of India have announced several relief measures, including a hike in the statutory borrowing limit and enhancement of ways and means (WMA) advances of States to help them in these difficult times but unlike the RBI’s WMA relief, the Centre linked the hike in borrowing limit with implementation of certain reforms.
Given the plight of migrant workers, an early implementation of One Nation One Ration Card was one of the reforms that the Centre wanted States to roll out expeditiously.
Hike in borrowing limit linked to implementation of reforms
In May this year, the Centre allowed an additional borrowing limit of up to 2% of Gross State Domestic Product (GSDP) of States for the FY 2020-21. The move was aimed at enabling the States to borrow more to tide over the situation created by a steep shortfall in their revenue collection in the fiscal.
Read: Bihar pips other states to record highest growth in per capita income
According to an estimate of the ministry of finance, the hike in the statutory borrowing limit of States will allow them to borrow a total amount of Rs 4.27 lakh crore in the fiscal.
However, the Centre linked the hike of 1% in a State’s borrowing limit to four specific reforms at State level, where each reform has been assigned the weightage of 0.25% to a particular State’s GDP.
What reforms states are required to implement
In order to avail the additional borrowing limit in this fiscal, the Centre asked states to urgently implement (a) One Nation One Ration Card, (b) improve ease of doing business in the state, (c) carry out urban local body and utility reforms, and (d) power sector reforms.
The remaining additional borrowing limit of 1% was to be released in two instalments of 0.5% each, first immediately to all the States as untied to any reforms, and the second one was contingent on undertaking at least 3 out of the 4 above mentioned reforms.
The Union government has already allowed States to raise the first 0.5% as Open Market Borrowing in June this year, making available an additional amount of Rs 1,06,830 crores to States.
Read: New labour laws: What's good and bad for industrial workers?
