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FRBM limit for States hiked
The Union Cabinet chaired by the Prime Minister Narendra Modi here on Wednesday gave its approval for additional headroom to a maximum of 0.5 per cent over and above the normal limit of 3 per cent in any given year to the states that do not have revenue deficit with effect from financial year 2017-18.
Cabinet clears finance panel recommendations
New Delhi: The Union Cabinet chaired by the Prime Minister Narendra Modi here on Wednesday gave its approval for additional headroom to a maximum of 0.5 per cent over and above the normal limit of 3 per cent in any given year to the states that do not have revenue deficit with effect from financial year 2017-18.
The Fourteenth Finance Commission has adopted the fiscal deficit threshold limit of 3 per cent of Gross State Domestic Product (GSDP) for the states. Further, it has provided a year-to-year flexibility for additional fiscal deficit to states.
It may be recalled that several states including the Telugu states, particularly Telangana, have been pleading for 0.5 per cent hike in the same since long. TS does not have revenue deficit.
Chief Minister K Chandrasekhar Rao had written to the Niti Aayog and to the PM in this regard in the past as this additional headroom allows a greater freedom to the states in undertaking big ticket projects. This however will not benefit AP since it has huge revenue deficit following bifurcation of the state.
The Finance Commission taking into account the development needs and the current macro-economic requirement provided additional headroom to a maximum of 0.5 per cent over and above the normal limit of 3 per cent in any given year to the states that have a favourable debt-GSDP ratio and interest payments-revenue receipts ratio in the previous two years.
Since the year 2015-16 is over, the states will not get any benefit of additional borrowings for 2015-16. However, the implications for the remaining period of the award, i.e., 2016-17 to 2019-20, would depend upon respective states’ eligibility based on the criteria prescribed by the commission.
If a state is not able to fully utilise its sanctioned fiscal deficit of 3 per cent of GSDP in any particular year during the 2016-17 to 2018-19 of the award period, it will have the option of availing this unutilised fiscal deficit amount (calculated in rupees) only in the following year but within the commission stipulated award period.
For the purpose of calculating the unutilised borrowing space, the unutilised fiscal space as compared to FD limit of 3% of GSDP is to be reckoned. Similarly, any additional borrowings availed beyond the State’s entitlements shall be adjusted from Net Borrowing Ceiling of the following year.
There is no financial implication for Government of India as the borrowings are made by the respective state governments within the fiscal deficit limits laid down by Finance Commission and incorporated in FRBMA (The Fiscal Responsibility and Budget Management Act) of the states.
However, the state will get additional space to raise borrowings which may result in much needed government expenditure for capital projects/ infrastructure, the Cabinet concluded agreeing with the Fourteenth Finance Commission recommendations.
