The Finance Minister permitted 11 states to borrow an additional amount of Rs.15,721 crore. The 11 states are – Bihar, Andhra Pradesh, Chhattisgarh, Kerala, Haryana, Manipur, Meghalaya, Rajasthan, Madhya Pradesh, Nagaland, and Uttarakhand.
The department of expenditure granted permission to these 11 states to borrow Rs.15,721 crore as an incentive. These states have achieved their capital expenditure target set by the Ministry of Finance for the first quarter, i.e. June quarter of 2021-22, and thus are permitted to borrow additional amounts.
The approval for the additional open market borrowing is equivalent to 0.25% of the states’ Gross State Domestic Product (GSDP). It will help the states to push their capital expenditure further. The capital expenditure enhances the economy’s future productive capacity as it has a high multiplier effect and results in a higher economic growth rate.
Accordingly, there was an allocation of 0.50% of GSDP for incremental capital expenditure incurred by the states during 2021-22 out of their Net Borrowing Ceiling (NBC) of 4% of GSDP for 2021-22. The department of expenditure had fixed the target for incremental capital expenditure for the states to qualify for the incremental borrowing.
The states had to achieve the following per cent of the target set for 2021-22 to be eligible for incremental borrowing –
- At least 15% of the target set by the end of the first quarter of 2021-22
- At least 45% of the target set by the end of the second quarter of 2021-22
- At least 70% of the target set by the end of the third quarter of 2021-22
- 100% of the target set by the end of the last quarter, i.e. 31 March 2022
The department of expenditure will undertake the next review of the capital expenditure of states in December 2021. In the following review, the department will assess the capital expenditure achieved by the states till 30 September 2021.
The department will do the third review in March 2022 based on the capital expenditure incurred by the states during the first three quarters of 2021-22. The department will allow the capital-linked borrowing ceiling of 0.50% of GSDP to the states achieving actual capital expenditure of at least 45% of the set target by 30 September 2021 or 70% set target by 31 December 2021.
The final review of the actual capital expenditure of the states will be in June 2022. The Ministry of Finance will adjust any deficiency or shortfall in actual capital expenditure by the states for the year 2021-22 in comparison with the targeted capital expenditure for the year 2021-22 from the states’ borrowing ceiling for the year 2022-23.
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