Lok Sabha Question No. 50 (STARRED), answered on 2023-07-24
Subject: Additional Borrowings by States
Ministry: FINANCE
Asked by: Kavitha Malothu, Venkatesh Netha Borlakunta

FINANCE MINISTER

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF EXPENDITURE

## LOK SABHA

## STARRED QUESTION NO. *50

## TO BE ANSWERED ON MONDAY 24 th  JULY, 2023

[2 SRAVANA, 1945 (SAKA)]

## Additional Borrowings by States

## *50. SHRIMATI KAVITHA MALOTHU: SHRI VENKATESH NETHA BORLAKUNTA:

Will the Minister of FINANCE be pleased to state:

- (a) the  details  of  rules  prescribed  by  the  Government  for  additional  borrowings  by States during 2023-24;
- (b) whether the Government has changed the above rules and dis-incentivising States which are switching over to the Old Pension Scheme (OPS);
- (c) if so, the reasons for linking borrowings with pension scheme;
- (d) whether  it  is  not  discrimination  being  shown  by  the  Government  towards  States which are thinking of social security for their employees, if so, the details thereof and the reaction of the Government thereto; and
- (e) whether the Government proposes to reverse its decision and allow States reverting to OPS to borrow in 2023-24 on the same lines as other States are borrowing, if so, the details thereof?

## ANSWER

(SHRIMATI NIRMALA SITHARAMAN)

## Statement referred to in reply to Lok Sabha Starred Question No. *50 for answer on July 24, 2023 raised by  Shrimati Kavitha Malothu: Shri Venkatesh Netha Borlakunta: regarding 'Additional Borrowings by States'

(a) Based  on  the  recommendation  of  the  15 th Finance  Commission  (XV-FC),  the normal Net Borrowing Ceiling (NBC) of the States has been fixed at 3 percent of the Gross State Domestic Product (GSDP) for the financial year 2023-24. In addition, extra borrowing ceiling  has  been  allowed  to  State  Governments  equivalent  to  estimated  combined  share  of State and its employees' contribution pertaining to the financial year 2023-24 to be actually deposited  with  the  designated  authority  as  per  the  guidelines  of  National  Pension  System (NPS). Further, States are also eligible to avail additional borrowing of up to 0.50% of GSDP based on certain performance criteria in power sector.

(b) No Sir, aforesaid provisions for additional borrowing has been introduced to facilitate a proper and common yardstick for all the States in method of handling pension obligations by  providing  incentives  to  the  States  who  are  making  due  contribution  under  National Pension System (NPS) and to incentivize the States to implement specified reforms in power sector.

(c) It had come to the notice that there is an increasing divergence of practices between different  State  Governments  regarding  the  method  of  handling  pension  obligations  for  the Government  staff  recruited  after  2004.  Some  of  the  States  either  decided  or  indicated  a decision to follow a system of pay-as-you-go with defined benefits, others have issued orders adopting the National Pension System (NPS) but have not made due contributions, while the majority of States have adopted NPS and are making due contributions under NPS. States, who are on pay-as-you-go system or have now indicated a shift to such system and those who have not made the NPS contributions may give a notion of a lower fiscal deficit but the fiscal deficit of such States does not reflect the contributions towards future liabilities for payment of pension.  Therefore, to facilitate a proper and common yardstick for all the States, the net borrowing ceiling of each State has been augmented by the amount of pension contributions actually paid to the NPS by the State Government and its employees. This amount represents an  approximate  proxy  for  the  unfunded  liabilities  being  carried  by  other  States  without reflection in the fiscal deficit, though the true unfunded liabilities of those States are likely to be higher in view of the residual liability of the State for payment of pension under the old system.

(d) & (e) No  Sir,  the  net  borrowing  ceiling  of  States  as  recommended  by  the  15 th Finance  Commission  has  not  been  reduced  for  any  of  the  States.  Only  in  case  of  States contributing to  NPS, the  borrowing  ceiling  has  been  augmented by  the  amount  of  pension contribution  actually  paid  to  the  NPS,  as  an  incentive,  to  ensure  a  proper  and  common yardstick for all the States in the method of handling pension obligations.   Presently,  there  is no  proposal  to  amend  the  borrowing  guidelines  for  the  States  for  2023-24  issued  by  the Department of Expenditure on 27.03.2023.

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