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States get more time for push citizen-centric reforms for additional borrowing

New Delhi

16-December-2020

The Union Finance Ministry has extended the deadline for the states to complete citizen-centric reforms in various sectors and qualify for additional borrowings.

The state will be eligible for reform linked benefits even if the recommendation from the nodal Ministry concerned regarding implementation of the reform is received by February 15, 2021.

The Centre has identified four critical areas for reforms by the states viz. implementation of one nation, one ration card system, ease of doing business reform, urban local body/utility reforms, and power sector reforms that has to be undertaken within a specified time.


States successfully completing the reforms are eligible to get two benefits - the facility of 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 to the states on completion of all the four reforms.

In view of the resource requirement to meet the challenges posed by the Covid-19 pandemic, the government had decided in May to raise the borrowing limit of the states by 2 per cent of their GSDP above the earlier stipulated level of 3 per cent of GSDP. This was aimed at enabling the states to mobilise additional financial resources of up to Rs 4.27 lakh crore. Half of this special dispensation was linked to reforms. The purpose was to motivate the states to carry out reforms in various citizen-centric areas.

The second benefit available to the 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 earmarked for the states that will complete at least three out of the four stipulated reforms.

The scheme was announced by the Finance Minister on October 12, as part of Aatmanirbhar Bharat Package 2.0. It is aimed at boosting capital expenditure by state governments who are facing difficult financial environment this year due to the shortfall in tax revenue arising from the Covid-19 pandemic.

A total amount of Rs 12,000 crore has been earmarked by the Centre under this scheme. Capital expenditure has a higher multiplier effect, enhancing the future productive capacity of the economy, and results in a higher rate of economy growth.

The twin incentives have pushed the states to undertake the reforms. So far 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 done the urban local body/utility reforms, a Finance Ministry statement said.

Additional borrowing permission of Rs 40,251 crore has been granted to these states. Extension of the date for completion of reforms is likely to motivate other states also to complete the reform process expeditiously and avail the linked financial benefits, the statement added. - IANS