The Centre on Thursday relaxed the fiscal consolidation targets of States further to permit them an additional combined borrowing of Rs. 21,000 crore during the current fiscal to combat the economic slowdown.

According to a decision taken by the Union Cabinet at its meeting here, with the relaxation in Debt Consolidation and Relief Facility (DCRF) norms, States would not lose the assistance provided by the Centre even if their fiscal deficit touches four per cent of their respective Gross State Domestic Product (GSDP) following the mop-up of additional amount from the market.

Briefing the media after the Cabinet meeting, Information and Broadcasting Minister Ambika Soni said: “The Union Cabinet on Thursday approved the relaxation of the Debt Consolidation and Relief Facility guidelines, to enable the States to borrow up to four per cent of their respective Gross State Domestic Product during 2009-10.” The Centre’s move, she said, would go a long way in reversing the impact of the slowdown and accelerate growth in the medium term.

Under the DCRF, the Centre provides debt and interest relief to those States which meet their fiscal deficit targets. As part of the second stimulus package in 2008-09, States were allowed to go in for additional borrowings even if their fiscal deficit touched 3.5 per cent of their respective GDPs as compared to the earlier cap of three per cent.

The move to provide greater flexibility to States by way of additional mop-up was part of the budget proposals for 2009-10 which was tabled by Finance Minister Pranab Mukherjee in the Lok Sabha. “The State governments will be permitted to borrow an additional 0.5 per cent of their GSDP,” he had said.

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