PSU debt serviced by a state to be brought under its FRBM limit: Govt

Such borrowings shall be considered as those availed by the state itself for the purpose of issuing consent under Article 293(3) of the Constitution, says FM Sitharaman

The Centre has informed the states that if any of their state-owned companies, special purpose vehicles or agencies borrow from the markets, and that debt is serviced by the state government, then the borrowing will be considered under the states’ fiscal responsibility and budget management (FRBM) limit.

This was revealed by Finance Minister Nirmala Sitharaman in a written reply tabled in Lok Sabha on Monday.

Instances of borrowings by certain state PSUs, SPVs and other equivalent instruments, where principal and/or interest are to be serviced out of the state budgets, had come to the notice of the Ministry of Finance, she said in the reply.

“Considering the effect of bypassing the net borrowing ceiling of the states by such borrowings, it was decided and communicated to the States in March 2022 that such borrowings shall be considered as borrowings made by the State itself for the purpose of issuing the consent under Article 293(3) of the Constitution of India,” she said.

In her 2022-21 Union Budget, Sitharaman had announced that states would be allowed to borrow upto 4 percent of their gross state domestic product, instead of the earlier 3 percent norm, in view of stresses caused to their finances due to the Covid-19 pandemic.