Cabinet nods to Fiscal Deficit Target for states

The Dollar Business Bureau

The Union Cabinet on Wednesday has approved the recommendations on Fiscal Deficit Target and Additional Fiscal Deficit to states during the Fourteenth Finance Commission (FFC) for 2015-20.

The cabinet was chaired by Prime Minister Narendra Modi and it fixed fiscal deficit target for several states. “FFC has adopted the fiscal deficit threshold limit of 3 per cent of Gross State Domestic Product (GSDP) for States,” the government said in a statement. The view of FFC is that one size does not fit all and that states are mature enough to capably manage their own fiscal needs.

The states will be authorized to surge their fiscal deficits, which have a debt GSDP ratio of less than 25% and interest payments-revenue ratio less than 10% in the last two years. States would be eligible to increase borrowing by a quarter of a percentage point above the 3% of GSDP limit if they fulfil any one of the two conditions.

“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,” the Centre added.