States' borrowing limit for fiscal 2009-10 raised to 3.5 per cent

The centre today relaxed the debt consolidation and relief facility (DCRF) guidelines by modifying the fiscal deficit target as 3.5 per cent of gross state domestic product (GSDP), to enable states increase borrowings for undertaking capital expenditures.

The finance minister today announced in the Lok Sabha that the arrangement of 3.5 per cent of fiscal deficit target for the states is being extended to 2009-10.

In January 2009, the finance ministry, as a part of the second economic stimulus package, had raised the borrowing limit for states by 0.5 percentage points, enabling them to raise additional Rs30,000 crore, for capital expenditures.

In addition, the DCRF requirement of elimination of revenue deficit was also relaxed for 2008-09.

These states will now not lose the benefits of DCRF, provided they achieve the 3.5 per cent fiscal deficit target in 2009-10 and maintain revenue balance in 2009-10. Such states will have to suitably amend their respective FRBM Acts.

As regards states which opt to borrow in excess of 3.5 per cent of their GSDP, the finance ministry will consider additional market borrowings during 2008-09 up to 0.5 per cent of their GSDP for undertaking capital expenditures. These states will, however, forfeit the benefits of DCRF.

Finance ministry said it would write to the 13th Finance Commission to make appropriate adjustments in respect of debt relief granted under DCRF.

In the interim budget (2009-10), the finance minister had stated that the government may have to review the ceiling of fiscal deficit that the states can incur in 2009-10 in terms of the DCRF.

''After further consideration, it has been concluded that there is a need to extend the relaxation in the fiscal deficit target of the states to 2009-10 in order to spur the development of infrastructure and employment generation,'' the release said.

Despite the economic stimulus measures taken by the government, the strong export linkages with developed economies is likely to delay its impact on the economy, the release added.