Finance Minister allows five states to raise financial resources through Open Market Borrowings

Published: September 25, 2020

The Finance Minister Nirmala Sitaraman recently allowed five states to raise additional financial resources of Rs 9,913 crores such as Telangana, Andhra Pradesh, Karnataka, Tripura and Goa.

Highlights

The states were granted permission as they have successfully implemented One Nation One Card System. The Central Government has been helping the states largely post pandemic. COVID-19 was declared as “notified disaster” under Disaster Management Act. This was done to allow the state government to use the State Disaster Response Funds. Also, the Central Government allowed additional borrowing of the states by increasing their borrowing limit to 2% of their Gross Domestic Product.

Andhra Pradesh can now borrow Rs 2,525 crores, Goa Rs 223 crores, Telangana Rs 2,508 cores, Tripura can borrow Rs 148 cores respectively.

What is Open Market Borrowing?

Open Marketing is the buying and selling of government securities in open market operations. This is currently being done only by the Reserve Bank of India. The GoI has now allowed the states to undertake open market operations.

RBI uses open market to control liquidity in the economy. In other words, when the reserve bank wants to infuse money in to the economy, it purchases Government Securities. By this, it gives money to the commercial banks and thus the money flow in the country increases.

There are two types of Open Market Operations. They are outright Purchase and Repurchase Agreement. Outright Purchase Is permanent and involves absolute (complete) buying and selling of government securities. On the other hand repurchase agreement are short-term and shall be repurchased.

One Nation One Card

The scheme was launched to provide food security to the Indian citizens under National Food Security Act, 2013. It is an upgraded scheme of Subsidised Public food Distribution System. Under the upgraded scheme, a person can avail food security benefits at subsidised prices in public distribution shops (ration shops) irrespective of his location.

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