Centre relaxes norms for adjusting states' off-budget borrowings
New Delhi: The Centre has relaxed norms for adjusting states' off-budget loans and said such liabilities of last fiscal year can be adjusted against their borrowing ceilings of next four years till March 2026.
The move will free up resources for states to fund their capital expenditures in current fiscal year. To bring in transparency in state finances, the Centre in March informed states that off-budget borrowings are to be equated with the states' own debt and any such fund raised by the governments in 2020-21 and 2021-22 would need to be adjusted out of the borrowing ceiling this year.
Off-budget borrowings refer to loans taken by state government entities, special purpose vehicles, etc, where principal and interest would be repaid from state government's own budget, instead of the cash flows or revenues generated by the borrowing entity.
Such borrowings bypass the net borrowing ceiling fixed for states in a fiscal year by routing loans outside state budget through government owned companies or statutory bodies. Since the responsibility for repayment lies with states, it adversely impacts their revenue and fiscal deficit . With many states facing difficulties due to the borrowing restriction in current fiscal year because of the magnitude of such loans, the finance ministry has relaxed the norms and said off-budget borrowing done by states up to 2020-21 may not be adjusted and only those done in 2021-22 can be adjusted over up to 4 years till March 2026 Considering the magnitude of the off-budget borrowing of some states and difficulties expressed by states, it has been decided that off-budget borrowing done by states up to the year 2020-21 may not be adjusted. Further adjustment on account of off-budget borrowing done by states in 2021-22 is to be done over up to four years (2022-23 to 2025-26), the Department of Expenditure under the finance ministry said.
As per norms, state governments are required to take the Centre's approval for fresh borrowing over the limit set for a particular financial year.
Over the last two years, many states have resorted to off-budget borrowing to fund their capital expenditures and minimise the impact of a economic downturn induced by COVID-19.
The Centre has fixed the net borrowing ceiling of states at Rs 8,57,849 crore or 3.5 per cent of GSDP. States are also eligible for additional borrowing of 0.50 per cent of GSDP linked to reforms in the power sector.
