Cabinet approves recommendations of 14th Finance Commission on fiscal deficit targets
Since the year 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, i.e., 2016-17 to 2019-20, would depend upon respective States’ eligibility based on the criteria prescribed by FFC.
For the year 2016-17, the following fiscal parameters need to be taken into account before determining states eligibility for additional borrowings of 0.5% of GSDP recommended by FFC: (Para 14.64 to 14.67 – Vol. I read with Annexure 14.2 of Vol. II of the FFC Report):
a) The revenue position of the State as per Finance Account for t-2 and as available from Revised Estimates for t-1. To illustrate, for the year 2016-17, the revenue position of the State for 2014-15 (actual as per Finance Accounts) and 2015-16 (RE) would be relevant.
b) The IP/TRR ratio and Debt/GSDP ratio based on the data as contained in Finance Account for t-2. To illustrate, for determining States’ eligibility for 2016-17, the IP/TRR ratio and Debt/GSDP ratio as disclosed in Finance Account of States for 2014-15 would be relevant.
If a State is not able to fully utilise its sanctioned fiscal deficit of 3 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 FFC award period. For the purpose of calculating the unutilised borrowing space, the unutilised fiscal space as compared to FD limit of 3% 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 Government of India as the borrowings are made by the respective State Governments within the fiscal deficit limits laid down by Finance Commission and incorporated in FRBMA of the States. However, the State will get additional space to raise borrowings which may result in much needed Government Expenditure for Capital projects/ infrastructure.