Govt’s new incentive scheme for States to meet their benchmarks & become eligible for incremental borrowing

The government recently unveiled a new incentive programme for states that meet their benchmarks and qualify for incremental borrowing. This was mentioned by Shri Pankaj Chaudhary, Union Minister of State for Finance, in a written response to a question in Lok Sabha today.

More specifically, the Minister indicated that 0.50 percent of the net borrowing ceiling (NBC) of 4 percent of GSDP for the States for 2021-22 was earmarked for incremental capital expenditure to be committed by the States during 2021-22. The incremental capital spending objective for each state in order to qualify for this incremental borrowing was set. This earmarking for incremental capital spending was made because capital expenditure has a large multiplier effect, improves the economy’s future productive potential, and results in a better rate of economic growth, according to the Minister.

To be eligible for incremental borrowing, states must reach at least 15% of the objective established for 2021-22 by the end of the first quarter, 45 percent by the end of the second quarter, 70% by the end of the third quarter, and 100% by March 31, 2022, according to the Minister.

The Minister stated that eleven (11) states, including Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Kerala, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Rajasthan, and Uttarakhand, had met the Ministry of Finance‘s target for capital expenditure in the first quarter of 2021-22. As an incentive, these states were awarded additional borrowing authority of 0.25 percent of their GSDP, equal to Rs. 15,721 crore, according to the Minister.