PremiumNEW DELHI: Prime Minister Narendra Modi on Tuesday, in a LinkedIn post, said that states raised an extra Rs1.06 trillion in the last financial year by leveraging their enhanced borrowing limits under the Aatmanirbhar Bharat package that called for carrying out reforms.
The qualifying measures included introducing reforms in four areas such as universalisation of “one nation one ration card", ease of doing business, power distribution and urban local body revenues.
“India has seen a model of ‘reforms by stealth and compulsion’. This is a new model of ‘reforms by conviction and incentives’," PM Modi wrote in his LinkedIn post. "Officials who have been working on these reforms suggest that without this incentive of additional funds, enactment of these policies would have taken years."
In an attempt to help shore up revenues of states during the first wave of the coronavirus pandemic that originated in Wuhan, China, the union government in May last year raised borrowing limits for states. The headroom for borrowing for the last fiscal was raised to 5% of gross state domestic product (GSDP) from 3%, subject to the states carrying out specific reforms including recommendations made by the 15th Finance Commission.
While articulating reforms undertaken by states as part of this package, Modi said, “Overall, 23 states availed of additional borrowings of Rs1.06 lakh crores out of a potential of Rs. 2.14 lakh crores. As a result, the aggregate borrowing permission granted to states for 2020-21 (conditional and unconditional) was 4.5% of the initially estimated GSDP."
“An extra 2% of GSDP was allowed, of which 1% was made conditional on the implementation of certain economic reforms. This nudge for reform is rare in Indian public finance. This was a nudge, incentivising the states to adopt progressive policies to avail additional funds. The results of this exercise are not only encouraging but also run contrary to the notion that there are limited takers for sound economic policies," the prime minister said.
States have been demanding extra resources as they face an acute resource crunch following the second wave of the coronavirus pandemic. For FY22, the central government has fixed net borrowings of states at 4% of gross state domestic product, of which 0.5% is linked to capital spending targets.
Earlier this month, West Bengal finance minister Amit Mitra urged finance minister Nirmala Sitharaman to take urgent fiscal measures to ease the fund crunch faced by states, including raising borrowing limit of states for FY22 to 5% without any riders.
“For a large nation with complex challenges as ours, this was a unique experience. We have often seen that for various reasons, schemes and reforms remain un-operational often for years. This was a pleasant departure from the past where the Centre & States came together to roll out public friendly reforms in a short span of time amidst the pandemic," PM Modi wrote in his post.
“The four reforms to which additional borrowings were linked (with 0.25% of GDP tied to each one) had two characteristics. Firstly, each of the reforms was linked to improving the Ease of Living to the public and particularly the poor, the vulnerable, and the middle class. Secondly, they also promoted fiscal sustainability," the post added.
Last year, PM Modi had announced a ₹20 trillion stimulus package with an aim to build an India based on self-reliance, focussing on land, labour, liquidity and laws.
While making a pitch for cooperative federalism, PM Modi in his LinkedIn post wrote, “This significant increase in availability of resources was made possible by an approach of Centre-State bhagidari."
The Indian economy contracted 7.3% in FY21 due to the first wave of the covid-19 pandemic. With many states imposing during the second wave of the pandemic, India’s growth projections for the current fiscal have been subdued and below 10%. The government has also not announced any fresh stimulus yet.
“The second wave of the pandemic has led to the reimposition of lockdown across states since the start of the current financial year, resulting in the loss of economic output and thereby income for the government. The uncertainty around the unlocking process is a setback for the revival of the economy across regions," Care Ratings said in a report on Tuesday.
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