₹60,000 Crore Lifeline: Centre Aids States in Fiscal Expansion for FY24

The Indian government, through the Department of Expenditure, Ministry of Finance, has granted 22 states permission to undertake additional borrowing of more than ₹60,000 crore (approximately $7.21 billion) in the financial year 2023-24. This decision extends beyond the states’ net borrowing ceiling and is aimed at encouraging and supporting reforms in various sectors, particularly the power sector.

Key Details of the Additional Borrowing Scheme:

1. Purpose and Background:
   • The initiative, first announced in the Union Budget 2021-22, is designed to incentivize states to undertake specific reforms, particularly in the power sector.
   • It provides an additional borrowing space of up to 0.5% of the Gross State Domestic Product (GSDP) annually for four years from 2021-22 to 2024-25​​.
2. Previous Years’ Performance:
   • Over the last two financial years (2021-22 and 2022-23), 12 state governments have been allowed to raise financial resources of ₹66,413 crore through additional borrowing permissions for undertaking reforms​​.
3. FY 2023-24 Provisions:
   • For the financial year 2023-24, states can continue to avail themselves of the facility of additional borrowing linked to power sector reforms.
   • An amount of ₹1,43,332 crore is available as an incentive for states to undertake these reforms in 2023-24.
   • States that did not complete the reform process in the previous two years may also benefit from the additional borrowing earmarked for 2023-24 if they carry out the reforms in the current financial year​​.
4. Eligibility Criteria for Incentives:
   • States must undertake a set of mandatory reforms and meet performance benchmarks.
   • The required reforms include metering electricity consumption, subsidy payment by Direct Benefit Transfer (DBT), reducing Aggregate Technical & Commercial (AT&C) loss, meeting targets for reduction in Average Cost of Supply and Average Realizable Revenue (ACS-ARR) Gap, reducing cross subsidies, ensuring government departments and local bodies pay electricity bills, installing prepaid meters in government offices, and using innovative technologies​​​​.
5. Performance Evaluation:
   • A state’s performance is evaluated based on specific criteria to determine its eligibility for the incentive amount, which may range from 0.25% to 0.5% of GSDP based on performance​​.

This move by the Central government aims to boost operational and economic efficiency within the power sector and promote a sustained increase in paid electricity consumption, aligning with broader goals of economic reforms and sustainable development. The additional borrowing facility is expected to provide significant financial flexibility to the states, enabling them to undertake necessary reforms and investments in critical sectors.