The additional unconditional borrowing freedom of 0.5% of the gross state domestic product (G-SDP) given to 21 states and two Union Territories is in fulfilment of the promise made by the Centre that such incentive will be given to all states choosing its ‘Option 1’ to bridge the goods and services tax (GST) revenue shortfall in FY21.
While these will be open market borrowings (OMBs), the special RBI-facilitated window for states to raise the funds required for part GST compensation will be available to them separately, the Centre clarified on Wednesday.
As many as 20 states chose Option 1 for GST compensation on Tuesday; on Wednesday, Tamil Nadu became the 21st state to join the bandwagon; additionally, UTs of Delhi and Jammu & Kashmir also chose the route.
The extra OMB space accorded to these 21 states and two UTs added up to Rs 78,542 crore.
The decision means these states and UTs can raise 4% of G-SDP via OMBs this fiscal, even if they don’t fulfil any of the reform conditions set out by the Centre in May, as it raised the FY21 borrowing ceiling for states. The ceiling was then raised from 3% of G-SDP to 5% of G-SDP or by about `4.28 lakh crore in aggregate.
Source: Financial Express
