India Allows States to Raise Borrowings by 66% to Beat Crisis

(Bloomberg) -- India increased the borrowing limits of provincial governments to 5% of the state gross domestic product from 3% currently, to ease funds availability as a nationwide lockdown hurts revenue collection.

States can borrow an additional 4.3 trillion rupees ($56.6 billion) from the current 6.41 trillion rupees during the current fiscal year that started April 1, Finance Minister Nirmala Sitharaman announced in New Delhi Sunday. Some of the extra bond sales will be linked to meeting certain conditions, she said.

Read: India Said to Mull Raising Borrowing Limit of States

While borrowing up to 3.5% of GSDP will be unconditional, the next 1% increase will be allowed in four tranches of 0.25% with each linked clearly to measurable reforms in food distribution, ease of doing business, power distribution and urban local body revenues, she said. The last 0.5% of borrowing will be allowed if three of the four milestones are achieved.

States have so far borrowed only 14% of the limit authorized.

States have been facing delays in receiving their share of a national sales tax from the federal government, which has in turn affected running the daily operations and payment of salaries. The central bank has stepped in and increased states’ access to short-term cash requirements -- also called ways and means advances.

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