As per the recommendations of the Fourteenth Finance Commission (FFC), Union cabinet has consented the fiscal deficit target of 3% of gross state domestic product (GSDP) for states for the 2015-20 period.
- It has been permitted to the states with adequate finance to borrow an extra 0.5% of their GDP, beyond the 3% stipulated by the 14th Finance Commission, in order to help them to meet their development needs.
- The cabinet approved it with year to year flexibility for additional deficit of about 0.5%.
There would be no monetary implications for the Centre as the borrowings are made by states within the fiscal deficit limits incorporated in their respective Fiscal Resposibility and Budget Management legislations.
- In order to elevate borrowings, states with favorable debt GSDP ratio and interest payment revenue receipts ratio in the previous 2 years will get additional space which will enhance the capital projects or infrastructure of the state.
What if the state is not able to fully utilize its sanctioned fiscal deficit in any year?
In this case, the state may avail this partially utilized amount only in the following year but within the FFC award period.
- Any additional borrowing beyond the entitlement would be adjusted from the net borrowing ceiling of the following year.
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