States Urge Union Finance Ministry to Ease Their Borrowing Limits
The borrowing ceiling for states is currently set at 3% of the Gross State Domestic Product (GSDP). States can borrow an additional 0.5% of GSDP if they implement specific reforms. Recently, states such as Kerala, Telangana, Karnataka, and Maharashtra have appealed to the Union Finance Ministry to reconsider these borrowing limits, which take into account various financial obligations.
Key Points:
– Current Borrowing Limits: States are restricted to a borrowing limit of 3% of their GSDP, with the potential to increase to 3.5% upon undertaking specific fiscal reforms.
– Contentions Raised by States:
– States argue that the government has imposed additional conditions that limit their borrowing capacity.
– New factors influencing these limits include:
– Dues to power distribution companies.
– Unspent central funds.
– Contributions to the guarantee redemption fund.
– Off-budget borrowings.
– Statements from Finance Officials:
– Kerala’s Finance Minister, K.N. Balagopal, has voiced concerns, stating, “The Centre is treating loans outside the state exchequer as public debts, which limits our borrowing capability significantly.”
– Additionally, Kerala’s borrowing limit for the first nine months of 2025-26 is set at ₹29,529 crore, but last fiscal year, ₹1,877.57 crore was deducted due to adjustments.
– Consequences of New Regulations:
– An increase in additional conditions has made it more challenging for states to maintain fiscal discipline.
– This year’s conditions also account for public sector entity guarantees and unpaid bills, restricting funds available for essential services.
– Example of Other States:
– Punjab: The borrowing limit was reduced from ₹47,076.40 crore to ₹21,905 crore, citing unpaid dues exceeding ₹15,000 crore.
– Telangana and Karnataka: Similar reductions enforced due to their substantial off-budget borrowings, impacting their financial plans.
States are advocating for a review of these stringent borrowing limits to ensure that they can effectively manage their financial commitments and meet developmental goals. As the situation evolves, it remains critical for both state and central governments to work collaboratively to address these financial constraints.