States allowed 4% extra borrowing of GSDP

The government has accepted the Fifteenth Finance Commission’s recommendation to maintain the States’ share in the divisible pool of taxes to 41% for the five-year period starting 2021-22, and given an ‘in-principle’ nod to create a separate non-lapsable fund for defence and internal security modernisation.

States have been granted additional borrowing room of upto 4% of Gross State Domestic Product (GSDP) for 2021-22, with an additional 0.5% limit for those undertaking critical power sector reforms.

Terming the government’s acceptance of the 41% vertical share for States recommended by the Commission as a sign of its commitment to fiscal federalism, Finance Minister Nirmala Sitharaman announced revenue deficit grants for 17 States amounting to ₹1.18 lakh crore in 2021-22.

The Commission’s report, submitted to the President in November, was tabled in Parliament on Monday with the government’s action taken report. It has recommended additional revenue deficit grants of ₹2.94 lakh crore for 17 States over the next five years.

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