States Can Borrow More, But Will Be Linked To Reforms, Says Centre

States would be able to borrow more money, the Centre said today, increasing their borrowing limit from 3 per cent to 5 percent. This would give them an additional Rs 4.28 lakh crore, said Union finance minister Nirmala Sitharaman, unveiling the fifth and the last tranche of the Rs 20 lakh crore fiscal stimulus. The states have been facing sharp decline in revenues following the countrywide lockdown imposed to counter coronavirus. "We have consistently provided the necessary support because they are at the front end of fighting the pandemic," Ms Sitharaman said.

The states have a net borrowing ceiling, the minister said. They can borrow up to 3 per cent of state's GSDP. "The government is increasing the borrowing limit to 5 per cent from 3 per cent. This will give an additional Rs 4.28 lakh crore to states," the minister said.

The government, she said, has also asked the Reserve Bank to increase the advance limits for states by 60%.

The number of days a state can stay in continuous overdraft has been increased from 14 days to 21 days and from 32 to 51 days in a quarter, Ms Sitharaman said.

The states have been demanding financial assistance for long.

Last week, during their videoconference with Prime Minister Narenra Modi, all Chief Ministers underscored the point. The Centre must release their share of the Goods and Services Act, they said, and provide further assistance in the battle against coronavirus.   

For the State Disaster Response Fund or SDRF -- the primary fund available with States for disaster response -- Rs 11,092 crore was released in advance in the first week of April, the minister said.
The health ministry has released Rs 4,113 crore for funding measures against coronavirus, the minister said.

Rs 46,038 crore was devolved based on budget

The revenue deficit grants -- cover the gap between the state's revenue and expenditure – amounting to Rs 12,390 crore was given on time to states in April-May, Ms Sitharaman said.