This will enable the States to borrow up to 4% of their respective Gross State Domestic Product (GSDP) during 2009-10

The States will have to suitably amend their respective fiscal responsibility legislation if so required

The Union Cabinet on Thursday approved the relaxation of the Debt Consolidation & Relief Facility (DCRF) guidelines, to enable the States to borrow up to 4% of their respective Gross State Domestic Product (GSDP) during 2009-10. The States will not lose the benefits of DCRF, provided they are in compliance with this modified fiscal deficit target. The States will have to suitably amend their respective fiscal responsibility legislation if so required. The Union Ministry of Finance would write to the 13th Finance Commission to make appropriate adjustments.

The Ministry of Finance has been fixing the annual borrowing ceilings for States largely in accordance with the fiscal deficit targets recommended by the 12th Finance Commission and accepted by the Central Government. The target of 3% for 2008-09 had been relaxed to 3.5%, in response to the current economic slowdown. Subsequently, it was decided to extend the relaxation in the fiscal deficit target of the States to 2009-10 in order to spur the development of infrastructure and employment generation through larger public investment.

In his budget speech of 6th July, Finance Minister Pranab Mukherjee stated that against the backdrop of limited fiscal space because of reduction of CENVAT and Service Tax rates, the Government had substantially hiked the Gross Budgetary Support for the Annual Plan 2009-10. Bulk of this increased support is to be directed toward public investment infrastructure. The State Governments will be permitted to borrow an additional 0.5% of their GSDP. This will go in a long way in reversing the impact of economic slowdown and accelerate the growth revival in the medium term. This dispensation will allow the States to borrow about Rs210bn additionally in 2009-10.

source: Indiainfoline

Tags: borrowing rules, state rules

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