Tighter borrowing norms for states to enforce discipline

TO CHECK STATES' fiscal indiscipline, the Centre has tightened borrowing norms for them stating that their annual loan limits for FY26 will be reduced based on their liabilities.

- PRASANTA SAHU

A state's shortfall in contribution to guarantee redemption fund (GRF), unpaid electricity subsidy, and unspent amounts in central schemes lying with it will now be taken into account to determine its borrowing limit, sources said.

The Centre applies a common yardstick for fixing the annual borrowing limits of all states. In doing so, it is guided by the recommendations of the Finance Commission.

Accordingly, the net borrowing ceiling (NBC) is set at 3% of each state's GSDP. However, the gross borrowing limit can go up to 4.5% of the gross state domestic product (GSDP) if a state is undertaking identified reforms. And, it can go down if a state has unmet liabilities.