The Tamil Nadu government will be able to mobilise around ₹17,000 crore more in the coming financial year if it gets the Centre’s nod to raise its borrowing limit by 33% for meeting the additional expenditure arising out of the COVID-19 crisis.
The quantum of the proposed increase in the borrowing limit is in relation to that allowed for 2019-20, which is ₹51,800 crore. As of now, the limit prescribed for 2020-21 is ₹62,757 crore, which is an increase of 21.15% over the ceiling set for 2019-20. If the Centre concedes the State government’s request, the ceiling for the next financial year, beginning on Wednesday (April 1), will go up to ₹68,894 crore.
In his letter to Prime Minister Narendra Modi last Wednesday, Chief Minister Edappadi K. Palaniswami raised the demand for the hike in the borrowing limit and reiterated the same in another letter on Saturday. His demand was not just for Tamil Nadu but also for other States.
Fiscal deficit
The increase in the borrowing limit, if allowed, will also mean that the fiscal deficit, which should be within 3% of the Gross State Domestic Product, would go up to 4%. The nod of the Central government is required in the wake of the implementation of the Fiscal Responsibility Act.
The State government’s rationale for making the demand is that in the given “unprecedented situation”, the revenue of the government has “taken a hit and the expenditure needs have risen considerably”. The proposed increase in the borrowing limit would certainly help the States to immediately incur expenditure.
At the same time, “the States naturally have a limitation on how much they can borrow in the markets and will be crippled by massive repayment obligations if they borrow too much. But the onus on reviving the economy by fuelling consumption and investment falls on the [State] governments at this time,” Mr. Palaniswami pointed out in his letter.
A senior official of the State government expressed the hope that the T.N. government would be able to tide over the crisis if, besides the enhancement in the borrowing limit, the Union government provides a special one-time grant of ₹9,000 crore, as sought by the Chief Minister on Saturday.
