States allowed to borrow Rs.300 bn more next fiscal

February 26th, 2009 - 5:49 pm ICT by IANS  

New Delhi, Feb 26 (IANS) The central government Thursday approved the relaxation of fiscal deficit targets of states for the next financial year by allowing them to borrow up to 3.5 percent of gross state domestic product (GSDP), resulting in an additional borrowing capacity of Rs.300 billion (Rs.30,000 crore).
This extends the relaxation provided in January for 2008-09 as part of the second stimulus package. The approval came at a meeting of the cabinet of ministers here.

States could so far borrow up to 3 percent of their GSDP. By relaxing the ceiling by 0.5 percent, they can now borrow an additional Rs.300 billion from the markets to step up capital expenditure on infrastructure, thereby generating employment.

External Affairs Minister Pranab Mukherjee had in his interim budget speech Feb 16 indicated that the government might have to review the ceiling on fiscal deficit that states can incur in 2009-10.

Thursday’s approval comes in the wake of that suggestion and allows states to borrow 3.5 percent of GSDP during 2009-10, as well as a one-time relaxation to undertake capital expenditure.

The government also advised the states to appropriately amend their Fiscal Responsibility and Budget Management Acts to make room for these extra borrowings.

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