New Delhi/Kolkata: Tamil Nadu, Kerala and West Bengal have criticised the Modi government’s decision to link increased borrowing limits for states to the fulfilment of four conditions, including power reforms and completion of ‘one nation, one ration card’ linkage.
While Tamil Nadu has said the step went against the spirit of cooperative federalism, West Bengal has called the extension an “eyewash”. Kerala, meanwhile, has said the step sets a bad precedent.
As the Covid-19 pandemic spreads rapidly across India, most states are facing a severe shortfall in revenues. At the same time, there is a sharp increase in expenditure as they look to minimise the spread of Covid-19 and contain the fallout of the pandemic on different sections of society.
To address this fund shortage, states had demanded that their borrowing limits, as specified under the Fiscal Responsibility and Budget Management (FRBM), be increased to 4-5 per cent of gross state domestic product (GSDP) from the current 3 per cent.
This was not a demand only made by non-BJP ruled states like Kerala, Rajasthan and Tamil Nadu. Even Bihar, a state where the BJP is part of the ruling alliance, had sought a relaxation in borrowing limits.
Finance Minister Nirmala Sitharaman announced Sunday that states will be allowed to borrow upto 5 per cent of GSDP — or an additional Rs 4.28 lakh crore — from the markets, but imposed conditionalities for borrowings beyond 3.5 per cent.
States, she said, will have to ensure the universalisation of ration cards (to allow their use around the country), improve ease of doing business, bring in reforms to make state-owned power distribution firms more profitable, and shore up urban local body revenues.
For taking steps to meet each condition, they can borrow an additional 0.25 per cent each. The remaining 0.5 per cent borrowing will be subject to them fully meeting three out of the 4 conditions.
She had also pointed out that states had only utilised 14 per cent of their approved limits so far and that the remaining 86 per cent were still unutilised.
‘Voicing their opposition’
In a letter to Prime Minister Narendra Modi Monday, Tamil Nadu Chief Minister E. Palaniswami termed the conditions unreasonable and “needlessly onerous”, saying they will constrain the state government from finding funds for meeting essential expenditure.
“The states sought the additional borrowing limit, beyond 3 per cent of GSDP, mainly because of the significant shortfall in revenues due to the lockdown imposed in the wake of the Covid-19 pandemic. There are also large additional expenditure commitments,” he wrote in the letter, which was released to the media. These borrowings, he said, have to be repaid by states from future tax revenues and are not grants from the central government.
“Aggressively pushing a reform agenda on which a consensus is yet to be developed at a time when states have approached the Centre for additional borrowing out of sheer desperation is not in keeping with the spirit of cooperative federalism,” he added. “Linking of the central government’s power under article 293 (3) of the Constitution to permit additional borrowing by states to conditionalities is unprecedented.”
In the letter, Tamil Nadu specifically opposed the power distribution reforms criterion, calling it a politically sensitive matter. The state, Palaniswami said, is opposed to doing away with free power supply to farmers.
West Bengal Chief Minister Mamata Banerjee also called it an assault on India’s federal structure. Speaking at a press conference Monday, she said, “The increase in the FRBM is an eyewash. It has been increased from 3 per cent to 5 per cent on paper, but we will only get 0.5 per cent. For the rest 1.5 per cent , the states have to do away with the federal structure. We have decided not to bow down like this and to protect the federal structure. We will protect our government and its rights,” she said.
Kerala Finance Minister Thomas Isaac said on Twitter Sunday that the state welcomed the increase in borrowing limits but opposed the introduction of conditions.
“Most of these conditions can easily be implemented through dialogue. The Centre has set a bad precedent,” Isaac added. “In future, severe conditions may be imposed on even normal loans,” he said, adding that the 15th finance commission had not entertained any conditionalities on states’ market borrowings despite the central government including it in the terms of reference for the panel.
Kerala welcomes increasing fiscal deficit from 3% to 5%. But protest making of additional loans conditional. Most of these conditions can easily be implemented through dialogue. Centre has set a bad precedent. In future severe conditions may be imposed on even normal loans.
— Thomas Isaac (@drthomasisaac) May 17, 2020
“…But FC (finance commission) in its wisdom refused to bite the bait. Now Centre has used the pandemic crisis to introduce conditions on states’ market borrowing. A bad precedent,” he said.
Central govt. had included in the ToR of 15th FC imposition of conditions on the market borrowing of state govts. But FC in its wisdom refused to bite the bait. Now Centre has used the pandemic crisis to introduce conditions on states market borrowing. A bad precedent.
— Thomas Isaac (@drthomasisaac) May 17, 2020