Government To Allow Additional Borrowing For States Which Complete Specific Reforms

Edited by Nikita Prasad

16 Dec 2020, 03:36 PM IST

States which successfully complete reforms are eligible for incentive benefits.

The finance ministry has extended the deadline for the states to complete citizen-centric reforms in various sectors to February 15, 2021, in order to become eligible for availing additional borrowing. The government has identified four critical areas for reforms by the states, namely, the implementation of one nation, one ration card system, the ease of doing business reform, urban local body/ utility reforms, and power sector reforms. The expenditure department of the finance ministry said in a statement that those states which successfully complete the reforms are eligible to get two main benefits:

1. Additional borrowing equivalent to 0.25 per cent of their gross states domestic product for completing all reforms

The states which implement all reforms are eligible for an additional borrowing equivalent to 0.25 per cent of their gross states domestic product (GSDP) for completing each reform. Under this facility, additional borrowings of up to Rs.2.14 lakh crore is available on completion of all four reforms.
In order to tackle the challenges after the COVID-19 pandemic, the government had decided to raise the borrowing limit of the states by 2 per cent of their GSDP in May 2020. This was done to enable states to mobilise an additional financial resource of up to Rs.4.27 lakh crore. The purpose was to encourage the states to implement the citizen-centric reforms.

2. Scheme for Financial Assistance to States for Capital Expenditure for completing three out of four reforms

The second benefit available to states completing three out of the four reforms is additional funds assistance under the 'Scheme for Financial Assistance to States for Capital Expenditure'. Under the scheme, an amount of Rs 2,000 crore is meant for states that will complete at least three out of the four reforms.
This scheme was announced by Finance Minister Nirmala Sitharaman on October 12, 2020, as part of Aatmanirbhar Bharat Package 2.0. It is aimed at boosting capital expenditure by state governments, facing a shortfall in tax revenue due to the COVID-19 pandemic. An amount of Rs.12,000 crore has been set aside for states by the central government under this scheme.

According to the finance ministry, nine states have implemented the one nation, one ration card system, four states have completed the ease of doing business reforms and one state has completed the urban local body/utility reforms. Additional borrowing permission of Rs 40,251 crore has been granted to all of these states.