Centre relaxes fiscal deficit targets, borrowing ceiling for States:

New Delhi, Jan. 29 States can now spend at least Rs 30,000 crore more this financial year without having to lose any debt relief facility on account of the additional borrowing that would be resorted by them to fund their capital expenditure. The Union Cabinet on Thursday decided to relax the debt consolidation and relief facility guidelines (DCRF) for the current year 2008-09 by modifying the fiscal deficit targets as 3.5 per cent. This would enable the States to borrow up to 3.5 per cent of their respective Gross State Domestic Product (GSDP), and is a one-time relaxation for undertaking capital expenditure, an official spokesperson said after the Cabinet meeting.
In addition, the DCRF requirement of elimination of revenue deficit is also relaxed for 2008-09. These States will not lose benefits of DCRF, provided they achieve the 3 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. The Centre had in the second economic stimulus package allowed States to raise in the current financial year additional market borrowings of 0.5 per cent of their GSDP, amounting to about Rs 30,000 crore, for capital expenditures.
The Union Finance Ministry fixes the annual borrowing ceiling for States according to the fiscal deficit targets recommended by the Twelfth Finance Commission (TFC) and accepted by the Government. Consistent with recommendations of the TFC, the Finance Ministry had earlier allowed States to borrow up to 3 per cent of their respective GSDP during the year 2008-09. States that are on the fiscal correction path recommended by TFC get debt relief as recommended by the TFC.
Meanwhile, for States that opt to borrow in excess of 3.5 per cent of their GSDP, the spokesperson said that the Union Finance Ministry will consider additional market borrowings during 2008-09 up to 0.5 per cent of their GSDP for undertaking capital expenditures. Such States will, however, suffer forfeiture of the benefits of DCRF. The official spokesperson also said that the Finance Ministry would write to the 13th Finance Commission to make appropriate adjustments in respect of debt relief granted under DCRF.