Reform Linked Borrowing – Burning Issues – Free PDF Download

Question

• In recent times, the central government has allowed the states for additional borrowing subject to implementation of which of the below reforms?

1. 1. One Nation One Ration Card reforms
   2. Ease of doing business reforms
   3. Urban Local body reforms
   4. Power Sector reforms

Select the correct code from the options given below:

1. a) 1 & 2 only
2. b) 1, 2 & 3 only
3. c) 2, 3 & 4 only
4. d) 1, 2 ,3 & 4

The News

The News

• Covid-19 has created huge financial problems for Indian governments be it central or state government.
• Raising enough resources for public welfare while ensuring sustainability is very important especially during these challenging time of Covid-19 pandemic.
• But despite the constraints, Indian States were able to borrow an extra ₹1.06 lakh crore in 2020-21 (FY21) mainly due to centre’s “Reform linked borrowing initiative”.

What’s “Reform linked borrowing initiative”?

• In May 2020, under the Atmanirbhar Bharat package, the Centre had permitted States governments to borrow an additional 2% of Gross State Domestic Product (GSDP).
• However only 1% of GSDP was without conditions. The other half of the package was contingent on implementation of four reforms.

1. 1. One Nation One Ration Card reforms
   2. Ease of doing business reforms
   3. Urban Local body reforms
   4. Power Sector reforms

Was the initiative successful?

• 23 States availed of additional borrowings of ₹1.06 lakh crore out of a potential ₹2.14 lakh crore.
  1. 17 states facilitated ration-card portability and installed electronic point-of-sale devices at fair price shops. They were given granted additional borrowings amounting ₹37,600 crore.
  2. 20 States completed reforms to ease the red tape faced by businesses to avail borrowings of ₹39,521 crore.
  3. 11 states brought ULB reforms like notifying floor rates of property tax, water & sewerage charges etc. They were granted granted additional borrowing of ₹15,957 crore.
  4. The least traction was seen for the Union government’s power sector reforms.

You must be thinking…

• Can Central government do this?
• Can it give grants for borrowing to state based on performance?

Centre can do it..!!

Article 292: Borrowing by the Government of India

• The executive power of the Union extends to borrowing upon the security of the Consolidated Fund of India within such limits, if any, as may from time to time be fixed by Parliament by law and to the giving of guarantees within such limits, if any, as may be so fixed
• Article 293: Borrowing by States
• (1) Subject to the provisions of this article, the executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law and to the giving of guarantees within such limits, if any, as may be so fixed
• (2) The Government of India may, subject to such conditions as may be laid down by or under any law made by Parliament, make loans to any State or, so long as any limits fixed under Article 292 are not exceeded, give guarantees in respect of loans raised by any State, and any sums required for the purpose of making such loans shall be charged on the Consolidated Fund of India
• (3) A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government
• (4) A consent under clause ( 3 ) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.

Why don’t we nudge states towards other reforms?

• This nudge through the Atmanirbhar package for reforms was very rare in Indian public finance. The results of this exercise are quite encouraging.
• So, can we nudge states towards other reforms like bringing Model APMC act, Model Police act etc…

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