Lok Sabha Question No. 549 (UNSTARRED), answered on 2023-02-06
Subject: Borrowing Limits of States
Ministry: FINANCE
Asked by: Vellalath Kochukrishnan Nair. Sreekandan

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF EXPENDITURE

## LOK SABHA UNSTARRED QUESTION NO.  549 TO BE ANSWERED ON MONDAY, 6 th  FEBRUARY, 2023 17 MAGHA, 1944 (SAKA)

## Borrowing Limits of States

## 549. SHRI V.K. SREEKANDAN:

Will the Minister of FINANCE be pleased to state:

- (a) whether  the  Government's  decision  to  bring  down  the  borrowing  limit  of  States  had systematically stymied the raising of funds for infrastructure development and undermined welfare programmes, including pensions of the State Government's employees in Kerala and if so, the details thereof and the reaction of the Government thereto;
- (b) whether the Government had set Kerala's borrowing limit for the 2022-23 fiscal at 3.5 per cent of the Gross State Domestic Product which is estimated at Rs. 32,439 crore and if so, the details thereof;
- (c) whether  the  Government  is  aware  that  a  more  realistic  standard  is  required  to  fix  the  net borrowing limit for States and if so, the details thereof and the reaction of the Government thereto;
- (d) whether the Government has received any representation from the Government of Kerala to allow for more borrowing; and
- (e) if so, the details thereof and the steps taken by the Government in this regard?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

(a) to (c) : B ased  on  the  recommendation  of  the  15th  Finance  Commission  (XV-FC),  the  normal Net Borrowing Ceiling (NBC) of the States including Kerala have been fixed at 3.5 percent of the Gross State Domestic Product (GSDP) for the financial year 2022-23. GSDP for this purpose has been  calculated  based  on  the  methodology  prescribed  by  the  XV-FC  and  data  published  by

National Statistical Office (NSO). Accordingly, the normal NBC of the State of Kerala has been fixed at Rs. 32,439 crore for the financial year 2022-23. In addition, extra borrowing ceiling of Rs. 1,700 crore has been allowed to State of Kerala equivalent to estimated combined share of State and its employees' contribution pertaining to the financial year 2022-23 to be actually deposited with the designated authority as per the guidelines of National Pension System (NPS). In addition, States  are  also  eligible  to  avail  additional  borrowing  of  up  to  0.50%  of  GSDP  based  on  certain performance criteria in power sector. Further, in order to boost capital expenditure by the States, fifty year interest free loan of Rs. 1,072.44 crore have already been released to the State of Kerala during FY 2022-23 so far (upto 31.01.2023) under Scheme for Special Assistance to  States for Capital  Investment  for  2022-23'.  This  amount  is  over  and  above,  the  normal  net  borrowing ceiling.

Instances  of  borrowings  by  certain  State  Public  Sector  companies,  Special  Purpose vehicles  (SPVs)  and  other  equivalent  instruments,  where  principal  and/or  interest  are  to  be serviced out of the State Budgets, had come to the notice of the Ministry of Finance. Considering the  effect  of  bypassing  the  Net  Borrowing  Ceiling  (NBC)  through  such  borrowings  by  some States, as pointed out by the Comptroller & Auditor General, it was decided and communicated to the States in March 2022 that borrowings by State Public Sector companies/corporations, Special purpose vehicles (SPVs) and other equivalent instruments, where principal and/or interest are to be serviced out of the State Budgets and/or by assignment of taxes/cess or any other State's revenue, shall be considered as Borrowings made by the State itself for the purpose of issuing the consent under Article 293(3) of the Constitution of India.

(d) and (e) : State of Kerala, inter-alia, requested to exclude the borrowings of State Government entities  and  public  account  liabilities  of  States  in  determining  the  Net  Borrowing  Ceiling  of  the States.  The State of  Kerala also  requested  to  consider off-budget  borrowing  on a  net  borrowing basis  rather  than  gross  borrowing  basis  and  accordingly,  allow  replacement  borrowing  for repayment of such borrowings.

In  view  of  magnitude  of  off-budget  borrowings  and  difficulties  expressed  by  some States,  the  adjustment for  such  off-budget  borrowing  done  by  the  States  in  2021-22 was  spread across upto four remaining financial years of 15 th  Finance Commission award period (2022-23 to 2025-26). Further, replacement borrowing for repayment of off-budget borrowing which has been raised on or after 01.04.2021 has also been allowed to the State of Kerala.

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