Centre to review states' off-budget liabilities before approving borrowing limit for FY23
The central government is planning to review each state’s off-budget liabilities before approving its borrowing limit for 2022-23, reported Financial Express. The regulation is in view of the rising yields on the state development loans (SDLs) and the rate hike cycle started by the Reserve Bank of India (RBI), which could raise the cost of general government borrowings. The move will also ensure that the states do not over borrow by understating facts. States have been directed to submit information on off-budget borrowings, guarantees being provided to state-run entities and whether contributions to the national pension system (NPS) are being deposited in time or not. In the last two years, revenue constraints, Covid-induced extra spending on welfare and elevated capital expenditure by the Centre necessitated higher budget deficits and thereby elevated borrowings. As Covid pandemic hit states’ tax revenues, the Centre raised their borrowing limit by two percentage points to five per cent of GDP in 2021. States were also allowed to borrow up to 75 per cent of the annual threshold in April-December of the year. In 2021-22, the states’ borrowing limit was slashed to 4.5 per cent of GDP and it was cut further to four per cent of GDP in 2022-23.
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