Govt increases states’ borrowing limit for this year, but places conditions

With the final tranche, a total stimulus package of Rs 20,97,503 crore has been announced, including measures by RBI and those under Prime Minister Garib Kalyan Yojana.
Finance Minister Nirmala Sitharaman and MoS Anurag Thakur
Finance Minister Nirmala Sitharaman and MoS Anurag Thakur
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Finance Minister Nirmala Sitharaman on Sunday increased the net borrowing ceiling of states to 5% from 3% of state's gross domestic product (GSDP) only for the year 2020-21, a demand that the FM said came from many state governments. This is projected to give states an extra Rs 4.28 lakh crore.

However, this increase will be linked to specific state reforms, the FM added.

The state’s borrowing ceiling will be increased unconditionally from 3 to 3.5%. After that, the next 1% (upto 4.5%) will be released in four tranches of 0.25%, each of which will have a clearly specified and a measurable reform.

“We want to make sure that the poor are benefiting from all the money that is being borrowed. The last 0.50% will be given as soon as the milestones are achieved in at least three out of four reform areas previously identified,” the minister said.

This 1%, to be given out in 4 tranches, will be increased as an incentive for reforms in four areas: Universalisation of one nation, one ration card, ease of doing business, power distribution, and urban local body revenues. 

This came as part of the final tranche of the Rs 20,97,053 crore COVID-19 relief package. This includes money utilised from the RBI’s measures as well as the measures under the Prime Minister Garib Kalyan Yojana, which was a total of Rs 9,94,403 crore. 

“In tranche 1, measures worth Rs 5,94,550 crore were announced. In tranche 2, a stimulus of Rs 3,10,000 and in tranche 3, a stimulus of Rs 1,50,000 crore was announced. In tranche 4 and 5, Rs 48,100 crore stimulus was announced. Including the Rs 8.01 lakh crore of liquidity measures by RBI and Rs 1.92 lakh cr package in March, an overall stimulus of Rs 20,97,053 cr has been announced,” the finance minister said.

The final tranche, the finance minister said, will dwell upon seven steps: MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme), health (rural and urban), education, business and COVID-19, decriminalisation of the Companies Act, Ease of Doing Business and related matters, Public Sector Enterprises (PSUs), state governments and related resources. 


The finance minister announced an additional Rs 40,000 crore will be allocated under the MGNREGS. 

“The budget estimate was Rs 61,000 crore. The government will allocate an additional Rs 40,000 crore," the FM said. She added that this will help labourers get work during the monsoon. In addition, she said that since many are returning to their native places, they can enroll in their villages and they will get a job. The government expects that this will generate 300 crore person days. 


The finance minister announced that measures will be taken to ramp up health infrastructure. While no specific allocation was mentioned, the FM said that public expenditure on health will certainly be increased and investment at the grassroot level will also be ramped up for health and wellness centres in rural and urban areas.

“All districts will have an infectious diseases block in their hospitals. Public health labs will be set up at all block levels. We need to be ready for this pandemic and for any future pandemic and there is an emphasis on private and public labs,” she said.

To engage research, a ‘National Institutional Platform for one health’ by ICMR will be set up and a National Digital Health Mission blueprint to be implemented, the ministry added. 


The finance minister announced that the PM E-Vidya program will be launched immediately and will include DIKSHA, which is a one nation one platform facility for school students with e-content and QR coded textbooks. 

“One channel will be earmarked per class. There will be extensive use of community radios and podcasts. One of the biggest steps will be special e-content for visually and hearing-impaired children, so that they too get access to quality education. Top 100 universities will be permitted and automatically allowed to start online courses by May 30, 2020,” the finance minister said.

The minister spoke about ‘Manodarpan,’ an initiative for the psychological support of students, families and teachers for mental health and emotional well-being which will be launched immediately.

A new national curriculum and pedagogical framework for school, early childhood and teachers will be launched.

Ease of Doing Business

Stating that business has been severely affected during the lockdown, the Finance Minister stated that debts related to COVID-19 shall be excluded from default under the Insolvency and Bankruptcy Code (IBC). 

“No fresh insolvency proceedings will be initiated upto one year. Currently, under the MCA (Ministry of Corporate Affairs) it is 6 months and we are extending it by another six months,” she added.

For MSME’s, special insolvency framework will be notified under Section 240A of the IBC. The minimum threshold to initiate insolvency proceedings has now been raised to Rs 1 crore from Rs 1 lakh to help insulate the MSMEs. An ordinance will be introduced to pass this immediately, which will later go to Parliament to have this passed as an Act, the minister added.

One of the reforms announced on Sunday was that companies can directly list their securities in foreign jurisdictions. The listings of non-convertible debentures on stock exchanges will not be considered as listed companies. There will be more steps soon, the minister said.

Companies Act

Prior to the lockdown, all compliance deadlines were extended for companies so that procedural and technical defaults don’t take place, the minister said.

“Now, we have decided that most sections of the Companies Act pertaining to procedural and technical defaults to be decriminalised. A majority of compoundable offences sections to be shifted to internal adjudication mechanism (IAM) — this will make it simpler and secondly, this will help de-clog the courts,” the minister said. 58 sections will now be dealt with under IAM as compared to 18 earlier. 

“Seven compoundable offences will be dropped and five will be dealt with under alternative framework, an ordinance will again have to be passed for this. Amendments will decongest courts and NCLT,” the finance minister said.

Public sector enterprise policy:

Stating that an Aatma Nirbhar Bharat (self-reliant India) needs a coherent policy, the minister said that private investment will be open to all sectors.

“Public sector enterprises will continue to play in defined areas. We are coming up with a coherent policy wherein private sector will be allowed to participate in every sector available, but of course, public sector enterprises will continue to play an important role,” the minister said.

The government will announce a new policy which will categorise sectors as strategic, where PSUs will be present, and those will be notified. In strategic sectors, at least one and not more than four public sector enterprises will be present, which are notified, and private sectors will also be allowed to play their role.

In other sectors, the Public Sector Enterprises will be privatised. A detailed policy will be announced soon, the minister said.

Support to state governments: 

As the FM announced an increase in borrowing limit for states, like the Centre, states are also facing a sharp decline in their revenues, the FM noted. Despite all this, we have consistently extended support to the states, since they are at the front end of the COVID-19 fight. 

“Tax devolution has been done as per budget even though revenue has dropped. We have devolved Rs 46,038 crore in April based on the budgetary estimates. Revenue deficit grants of Rs 12,390 crore were given on time to states in April and May despite Centre’s stressed resources,” the minister said, adding that the State Disaster Relief Fund (SDRF) of Rs 11,092 crore was released in advance in the first week of April. 

The Health Ministry has separately released over Rs 4,113 crore for funding anti-COVID-19 activities, the minister said.

At the Centre’s request, the RBI has increased ways and means of advance limits to states by 60%. Ways and means advances are temporary loans that the RBI gives to states and the Centre, and it has the return the amount within 90 days, and interest is usually charged on the repo rate. 

The RBI also increased the number of days that the states can be in continuous overdraft position from the normal 14 to 21 days. The number of days that a state can be in overdraft in a quarter has been increased from 32 to 50 days. 

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