Unhappy with the decision of the central government on the issue of increasing the borrowing of states in the midst of the Corona crisis, states are demanding a rethink on it. Approval has been given by the Central Government to increase the lending of states conditionally. The bulk of state borrowings seek unconditional approval. Also, the demand for loan from the Reserve Bank has started gaining momentum again.
Bihar Deputy Chief Minister Sushil Kumar Modi has said in hindsight to Hindustan that the conditional system of borrowing given by the central government is not rational for the states. He said that in the new system provided by the central government, the initial 1 percent borrowing should be unconditional. At the same time, the rest of the part may be added with the condition of center reform. He also said that the central government has increased its debt by 53 percent. States will have to pay higher interest on borrowing from the market and there is also a possibility that our debt may not be subscribed, in such a case the Reserve Bank will need to intervene.
Sushil Modi said about the borrowing data of the states mentioned by the central government, that there is still a long time to borrow. According to him, there is a window of 6-6 months for the borrowing of states. In such a situation, not all borrowings have to be taken till May. For this, the states have time till June in the first quarter itself. In this case, whoever needs the borrowing will take it forward. The time till September is left in the first half.
At the time of the announcement of the relief package, the central government had said that the total sanctioned limit for states to raise loans during the financial year 2020-21 is fixed at Rs 6.41 lakh crore. However, the states have so far borrowed only 14 per cent of the authorized limit. The remaining 86 per cent of the authorized debt limit has not been used. Despite this, there was a demand from the states to increase this limit. Finance Minister Nirmala Sitharaman announced that in view of this demand of the states, the central government is raising the existing limit of total borrowing which is 3% of the GDP of the states to 5%. After these new announcements, the states will get an arrangement of additional borrowing of Rs 4.28 lakh crore. 6.41 lakh crore rupees loan is already available to the states.
However, the Central Government has imposed several conditions with this approval. The Finance Minister had stated that out of this two per cent increase in borrowings, half a per cent increase has been made unconditionally. That is, states will be able to borrow up to 3.5 percent of their GSDP. At the same time, 0.25 percent of its next one percent borrowings will be taken for one nation one ration card, 0.25 percent for ease of business, 0.25 percent for electricity distribution and 0.25 percent for the revenue of urban local bodies. The final 0.5 percent borrowing will be given to the state only after the target of three of these four standards is achieved. Now the states are opposing these conditions and in the coming days are writing a letter to the central government demanding a change in the system.