Linking Borrowings with Reforms will Help States

States are not obliged to borrow additionally as prescribed by the Centre, said NK Singh, Chairman of Fifteenth Finance Commission, here on Thursday. He said linking reforms with additional borrowing will help States to maintain a sustainable debt path.

“All borrowings are not an automatic right,” Singh said while addressing media after chairing two meetings of specific group (Fiscal Consolidation Road Map and Health Sector) of the Commission. He explained that additional borrowing by States is subject to Article 293 of the Constitution. On States’ objection on reforms being linked to borrowings, he said that these reforms will help them enhance their resource mobilisation capacity.

As part of ₹20-lakh crore package, the Centre has raised the cap of States’ borrowing to 5 per cent of their GSDP. Out of this 0.5 per cent borrowing has no conditions attatched while the remaining 1.5 per cent are subject to reforms to be undertaken by States such as PDS and power sector reforms. Some Opposition-ruled States have objected to the conditions imposed on them.

Singh clarified that States will have to examine their specific FRBM law as many of them have an escape clause. Also, additional borrowing can be resorted to in case of a natural calamity or disaster, provided they give a time line to return to the consolidation path. For the Centre, the original FRBM Act has a proviso for deficit of up to 5 per cent and that has not been superseded, he said.

Talking about the second meeting on health, Singh said one cannot second guess the pandemic’s path. Also, it is difficult to say when the number of cases will peak or start receding.

Since more manpower was now required to contain the pandemic in both rural and urban areas, deployment of 5th year MBBS students has been allowed.