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Borrowing limits of States hiked to 5% of GSDP
New Delhi, May 17, 2020
Union Finance Minister Nirmala Sitharaman today announced a Rs 40,000-crore increase in allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to boost employment and a series of other Government reforms and enablers to help revive the economy as it prepares for a post-COVID19 future.
Among other measures, she announced a new Public Sector Enterprise Policy under which all sectors will be open to the private sector while PSEs will play an important role in defined areas as well as an increase in the borrowing limits of States from 3% to 5% of the Gross State Domestic Product (GSDP), which would give them extra resources of Rs 4.28 lakh crore.
Addressing a press conference for the fifth consecutive day in a row to unveil details of the Rs 20 lakh-crore special economic package announced by Prime Minister Narendra Modi in an address to the nation on Tuesday, she also announced increased investments and public expenditure on health, initiatives in technology-driven education, enhancement of Ease of Doing Business and decriminalisation of Companies Act defaults.
Modi's announcement was aimed at reviving the country's economy -- which has suffered a devastating blow because of the coronavirus (COVID-19) pandemic and the lockdown imposed to contain the spread of the deadly disease -- and building a self-reliant India.
Sitharaman said the additional Rs 40,000 crore allocation under MGNREGS would help generate 300 crore person days in all.
The decision would help address the need for more work, including returning migrant workers in the monsoon season as well, create a larger number of durable and livelihood assets, including water conservation assets, and boost the rural economy through higher production.
On the "Public Sector Enterprise (PSE) Policy for a New, Self-reliant India", Sitharaman said India and the world had changed in the last few decades and there was need for a new coherent policy where all sectors are open to the private sector while PSEs will play an important role in defined areas.
Accordingly, the government will announce a new policy whereby a list of strategic sectors requiring presence of PSEs in public interest will be notified. In such strategic sectors, at least one enterprise will remain in the public sector but private sector will also be allowed.
In other sectors, PSEs will be privatized, with the timing to be based on feasibility and such other factors, the Minister said.
To minimize wasteful administrative costs, the number of enterprises in strategic sectors will ordinarily be only one to four; others will be privatized/ merged/ brought under holding companies, she said.
Sitharaman said that, despite the fact that the Centre had, like the states, faced a sharp decline in revenues, it had consistently extended generous support to them in this hour of need.
She said devolution of taxes (Rs 46,038 crore) in April was given fully as if Budget Estimates were valid, even though actual revenue showed unprecedented decline from Budget Estimates.
Revenue Deficit Grants to states (Rs 12,390 crore) were given on time in April and May, despite the Centre’s stressed resources. Advance release of SDRF funds (Rs 11,092 crore) was made in the first week of April.
She said more than Rs 4,113 crore was released from the Health Ministry for direct anti-COVID activities.
At the Centre's request, the Reserve Bank of India (RBI) had increased the Ways & Means Advance limits of States by 60%; the number of days a can be in continuous overdraft from 14 days to 21 days; and the number of days state can be in overdraft in a quarter from 32 to 50 days.
Sitharaman said the states' net borrowing ceiling for 2020-21 is Rs 6.41 lakh crores, based on 3% of GSDP. Of this, 75% was authorised to them in March 2020 itself and timing was left to the states. States have so far borrowed only 14% of the limit authorised, and 86% of the authorised borrowing remains unutilized, she pointed out.
"Nevertheless, states have been asking for special increase in borrowing from 3% to 5%. In view of the unprecedented situation, the Centre has decided to accede to the request and increase borrowing limits of States from 3% to 5%, for 2020-21 only. This will give states extra resources of Rs. 4.28 lakh crore," she said.
Sitharaman, however, said part of the borrowing would be linked to specific reforms, including recommendations of the Finance Commission).
This is meant to ensure sustainability of the additional debt through higher future GSDP growth and lower deficits; promote welfare of migrants and reduce leakage in food distribution; increase job creation through investment; safeguard the interests of farmers while making the power sector sustainable; and promote urban development, health and sanitation, she said.
The Minister said the reform linkage would be in four areas: universalisation of "One Nation One Ration Card", Ease of Doing Business, power distribution and urban local body revenues.
She said a specific scheme would be notified by the Department of Expenditure on the following pattern:
• Unconditional increase of 0.50%
• 1% in 4 tranches of 0.25%, with each tranche linked to clearly specified, measurable and feasible reform actions
• Further 0.50% if milestones are achieved in at least three out of four reform areas
In the area of public health, she said public expenditure on health would be increased and investments made in grassroot health institutions, including ramping up of Health and Wellness Centres in rural and urban areas.
To prepare India for any future pandemics, Infection Diseases Hospital blocks would be set up in all districts and Integrated Public Health Laboratories would be set up in all districts, along with block-level labs and public health units to manage pandemics.
The proposals also include a National Institutional Platform One Health by the Indian Council of Medical Research (ICMR) and implementation of the National Digital Health blueprint.
Sitharaman said that, in the area of education, PM eVIDYA, a programme for multi-mode access to digital/online education would be launched immediately.
It would consist of:
• DIKSHA for school education in states/UTs: e-content and QR coded Energized Textbooks for all grades (one nation, one digital platform)
• One earmarked TV channel per class from 1 to 12 (one class, one channel)
• Extensive use of Radio, Community radio and Podcasts
• Special e-content for visually and hearing impaired.
• Top 100 universities will be permitted to automatically start online courses by 30th May, 2020.
• Manodarpan - An initiative for psychosocial support of students, teachers and families for mental health and emotional wellbeing to be launched immediately.
• New National Curriculum and Pedagogical framework for school, early childhood and teachers will be launched: integrated with global and 21st century skill requirements
• National Foundational Literacy and Numeracy Mission for ensuring that every child attains learning levels and outcomes in grade 5 by 2025 will be launched by December 2020
As far as enhancement of Ease of Doing Business through Insolvency and Bankruptcy Code (IBC)-related measures is concerned, Sitharaman said the minimum threshold to initiate insolvency proceedings has been raised to Rs 1 crore from Rs 1 lakh, which would largely insulate the MSMEs.
Fresh initiation of insolvency proceedings would be suspended for up to one year, depending upon the pandemic situation.
The Government will be empowered to exclude COVID-19-related debt from the definition of "default" under the Code for the purpose of triggering insolvency proceedings.
Sitharaman said there would be decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM).
A majority of the compoundable offences sections will be shifted to internal adjudication mechanism (IAM) and powers of RD for compounding enhanced (58 sections to be dealt with under IAM as compared to 18 earlier).
She said the amendments would declog the criminal courts and NCLT.
Seven compoundable offences have been altogether dropped and five will be dealt with under the alternative framework, she said.
On the Ease of Doing Business (EoDB) for corporates, Sitharaman said the improvement in rankings in "starting a business" and "insolvency resolution" had contributed to the overall improvement in India’s ranking on EoDB.
She said further key reforms will include direct listing of securities by Indian public companies in permissible foreign jurisdictions; private companies which list NCDs on stock exchanges will not be regarded as listed companies; inclusion of the provisions of Part IXA (Producer Companies) of Companies Act, 1956 in Companies Act, 2013; power to create additional/ specialized benches for NCLAT; and lower penalties for all defaults for Small Companies, One-person Companies, Producer Companies and Start-Ups.
In the earlier four press conferences held in the past four days, Sitharaman had announced measures for the MSME sector, NBFCs, HFCs and MFIs, DISCOMs, migrant workers, MUDRA Shishu loanees, street vendors, middle class housing, farmers, Food micro enterprises, agricultural infrastructure, animal husbandry, and so on.
According to her, the measures announced on these five days add up to Rs 11.02 lakh crore, while the earlier measures announced by the Government amounted to Rs 1.928 lakh crore and by the RBI to Rs 8.01 crore. Thus, all these amounts add up to an economic package of Rs 20.97 lakh crore as announced by the Prime Minister.