The Government has recently announced a new incentive scheme for States that could achieve their targets and become eligible for incremental borrowing. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in written reply to a question in Lok Sabha today.           

Giving more details, the Minister stated that out of the net borrowing ceiling (NBC) of  4% of GSDP for the States for 2021-  22, 0.50 percent of GSDP was earmarked for incremental capital expenditure to be incurred by the States during 2021-22. The target for incremental capital expenditure for each state to qualify for this incremental borrowing was fixed. This earmarking for incremental capital expenditure has been done because the capital expenditure has a high multiplier effect, enhances the future productive capacity of the economy, and results in a higher rate of economic growth, the Minister stated.

To become eligible for incremental borrowing, the Minister stated that States were required to achieve at least 15 percent of the target set for 2021-22 by the end of 1st quarter of 2021-22, 45 percent by the end of 2nd quarter, 70 percent by the end of 3rd quarter and 100 percent by 31st March 2022.

Providing details and number of States which were granted permission to mobilise the additional borrowings after the end of 1st quarter, the Minister stated that Eleven (11) States namely, Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Kerala, Madhya Pradesh, Manipur, Meghalaya, Nagaland, Rajasthan and Uttarakhand had achieved the target set by the Ministry of Finance for the capital expenditure in the 1st Quarter of 2021-22. As an incentive, these States were granted additional borrowing permission of 0.25% of Gross State Domestic Product (GSDP) amounting to ₹ 15,721 crore, the Minister stated.

Incremental borrowing eligibility tied to achieving incremental capital expenditure targets grants states additional borrowing capacity. The Central Government created a performance linked incentive allowing States to access incremental borrowing by meeting incremental capital expenditure milestones within the 4% of GSDP net borrowing ceiling for 2021 22; 0.50% of GSDP was earmarked for such capital expenditure and States had to meet cumulative quarterly targets of 15%, 45%, 70% and 100% to qualify. Eleven States met the Q1 target and were granted an additional 0.25% of GSDP borrowing, aggregating Rs. 15,721 crore.