The Finance Ministry has permitted eleven states including, Andhra Pradesh, Uttarakhand, Bihar, Haryana, and Kerala to take an additional Rs 15,721 crore from the bond market after they met their capital expenditure targets for April-June 2021-22 quarter set by the Centre.
On September 14 the Finance Ministry in a statement said, “The additional open market borrowing permission granted is equivalent to 0.25 percent of their gross state domestic product (GSDP). Additional financial resources thus made available will help the States in pushing their capital expenditure further.” Chhattisgarh, Madhya Pradesh, Manipur, Meghalaya, Nagaland, and Rajasthan are the other states which have been permitted to borrow additional amounts.
The states are required to carry out at least 15 percent of their capital expenditure budgets set for 2021-22 by the end of the first quarter to become eligible for incremental borrowing, with 45 percent by the end of the second quarter, 70 percent by the end of the third quarter and by March 31, 2022, 100 percent.
Public investment has been made up by the Narendra Modi government in infrastructure projects its main plank is to bring back the economy spur demand and generate employment in a post-COVID-19 world. The Finance Ministry said, “The capital expenditure has a high multiplier effect, enhances the future productive capacity of the economy, and results in a higher rate of economic growth.”
For 2021-22, out of the net borrowing ceiling of 4 percent of GSDP for the states, 0.50 percent of GSDP was set aside for gradual capital expenditure to be collected. The pick out for incremental capital expenditure for each state to meet the requirement for this incremental borrowing was fixed by the Department of Expenditure.