Cabinet nod for fiscal deficit target for states

New Delhi, April 6 (IANS) The union cabinet on Wednesday approved the fiscal deficit target of 3 percent for states, as recommended by the 14th Finance Commission for 2015-20.

The commission has also provided for year-to-year flexibility for additional deficit, and the cabinet gave its approval to two flexibility options, a cabinet communique said.

The panel has provided additional flexibility to a maximum of 0.5 percent over and above the normal limit of 3 percent in any given year to states that have had a favourable debt-gross state domestic product (GSDP) ratio and interest payments-revenue receipts ratio in the previous two years.

“Since 2015-16 is already over, the states will not get any benefit of additional borrowings for 2015-16. However, the implications for the remaining period of the commission award, that is, 2016-17 to 2019-20, would depend upon respective states’ eligibility based on the criteria prescribed by finance commission,” the statement added.

If a state is not able to fully utilise its sanctioned fiscal deficit in any particular year from 2016-17 to 2018-19 period, it will have the option of availing of this unused fiscal deficit amount only in the following year, but within the commission award period.

Any additional borrowings availed beyond the state’s entitlements would be adjusted from the net borrowing ceiling of the following year.

Besides, there is no financial implication for the central government as the borrowings are made by the respective states within the fiscal deficit limits laid down by the finance commission and incorporated in the Fiscal Responsibility and Budget Management Act of the states, the statement said.

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