Centre allows 11 states to borrow Rs 15721 crore from market

Central government has allowed 11 states to borrow an additional fund of Rs 15,721 crore from the market, because they achieved the capital expenditure target that finance ministry had set for June quarter the fiscal year 2021-22.

Highlights

  • States that have been allowed to borrow include- Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Kerala, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Rajasthan and Uttarakhand.
  • Additional open market borrowing permission equivalent to 0.25% of their Gross State Domestic Product (GSDP) was granted.
  • Additional financial resources will help these states to push their capital expenditure further.

Multiplier effect

Capital expenditure is having a high multiplier effect. It will enhance the future productive capacity of economy and also result in higher rate of economic growth.

Net borrowing ceiling

Out of total net borrowing ceiling of 4% of GSDP, about 0.50% of GSDP has been kept for incremental capital expenditure to be incurred by states during FY22.

Who fixes the target?

Target of incremental capital expenditure for each state in order to qualify for the additional borrowing is fixed by the Department of Expenditure.

What was the target?

To be eligible for additional borrowing, states were required to achieve around 15% of the target by June quarter, 45% by September quarter, 70% by December quarter and 100% by March quarter of FY22.

Why states require centre’s permission while borrowing?

Article 293(3) of the Constitution provides for states to require Centre’s permission in order to borrow additional funds. This permission is granted after fulfilling certain conditions provided by Article 293(4). Centre has been exercising this power as per recommendations of the Finance Commission.

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