The centre on Sunday raised the borrowing limit for the state governments to 5 percent from 3 percent, while making the fifth and the last announcement on Rs 20 lakh crore package. This announcement was made to help the states in meeting their increased expenditure due to the outbreak of Covid-19 disruptions.
Earlier, states’ net borrowing limit for financial year 2020-21 was around Rs 6.41 lakh crores, based on 3 percent Gross State Domestic Product. This new relaxation in the borrowing limit to 5 percent is going to offer states extra resources worth Rs 4.28 lakh crores, said the Finance Minister Nirmala Sitharaman at a press conference in New Delhi on Sunday.
However, this fiscal relief to states is subject to certain conditions.
As announced by the Finance Minister, an increase of 0.5 percentage points will be unconditional, while the further 1 percent increase will be cleared in four tranches of 0.25 percentage each synced to states’ performance in the areas of one nation, one ration card scheme, ease of doing business, power distribution and Urban local body reforms.
The final increase of 0.5 percentage points will be provided only if the states hit their targets in three of the four outlined areas.