Context:

The Centre permitted five states to go for additional borrowing of 9,913 crores through Open Market Borrowings (OMBs) to meet their expenditure requirements amid falling revenues due to the COVID-19 crisis.

Key-highlights

• These five states are Andhra Pradesh, Telangana, Goa, Karnataka, and Tripura.
• The permission has been accorded after these states successfully met the reform condition of implementation of the ‘One Nation One Ration Card’ system.

 

The recent raise (graded, reform, and outcome-oriented)

• In May this year, the government raised the net borrowing limit for state governments from 3% of G-SDP to 5% to make available an additional Rs 4.28 lakh crore to all the states combined i.e. raising limit by 2%
• Out of 2%, 0.5 percentage points of the extra borrowing window will be available to all states unconditionally, 1% will be made available in four equal tranches with each to clearly “specified, measurable and feasible reform actions”.
• The balance of 0.5% can be accessed if milestones are ‘completely achieved’ in at least three out of four reform areas.
• The reform linkage will be in four areas –
  • Universalization of ‘One Nation One Ration Card’
  • Ease of doing business
  • Power distribution
  • Augmentation of urban local body revenues.

 

The constitutional framework

• A state government can borrow within India (not abroad) upon the security of the Consolidated Fund of the State.
• Article 293(3) of the Constitution requires states to obtain the Centre’s consent in order to borrow in case the state is indebted to the Centre over a previous loan.