Union Cabinet approves FFC’s recommendations on state fiscal deficit targets
06 Aparil, New Delhi
The Union Cabinet today approved the 14th Finance Commission’s recommendations on fiscal deficit target and additional flexibility for states during 2015-20.The FFC has recommended three per cent fiscal deficit target, along with additional headroom, subject to a maximum of 0.5 per cent in any given year to states that have a favourable debt-GSDP ratio and interest payments-revenue receipts ratio in the previous two years.
However, the flexibility in availing the additional fiscal deficit will be available to a state, if there is no revenue deficit in the year, in which borrowing limits are to be fixed and immediately preceding year, an official statement said here.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 FFC award, that is 2016-17 to 2019-20, would depend upon the respective states’ eligibility, based on the criteria prescribed by FFC.If a state is not able to fully utilise its sanctioned fiscal deficit of three per cent of GSDP in any particular year during the 2016-17 to 2018-19 of FFC award period, it will have the option of availing this un-utilised fiscal deficit amount (calculated in rupees) only in the following year, but within the FFC award period.
For the purpose of calculating the unutilised borrowing space, the unutilised fiscal space as compared to FD limit of three per cent of GSDP is to be reckoned. Similarly, any additional borrowings availed beyond the state’s entitlements shall be adjusted from Net Borrowing Ceiling of the following year.
There is no financial implication for the Centre as the borrowings are made by the respective state governments within the fiscal deficit limits laid down by the Finance Commission and incorporated in FRBMA of the States. However, the state will get additional space to raise borrowings, which may result in the much-needed Government Expenditure for Capital projects/ infrastructure, the statement added.