The “successful Centre-State bhagidari”, said the Prime Minister Narendra Modi on Tuesday, has helped States raise an extra Rs 1.06 lakh crore in 2020-21 and this, he said, happened despite the challenges thrown by Covid-19 pandemic. States were able to raise an extra Rs 1.06 lakh crore in 2020-21 by implementing a set of reforms that allowed them to borrow more from the Centre, Modi said in a blog titled “Reforms by Conviction and Incentives”,.
He wrote in his blog that 23 States availed of additional borrowings of Rs 1.06 lakh crore out of a potential Rs 2.14 lakh crore. “This significant increase in availability of resources was made possible by an approach of Centre-State bhagidari,” he wrote.
The Prime Minister said the Covid-19 pandemic has come with a whole new set of challenges to Governments across the world in terms of policy-making. India is no exception. Raising enough resources for public welfare while ensuring sustainability is proving to be one of the biggest challenges, he said.
“In this backdrop of the financial crunch seen across the world, do you know that Indian States were able to borrow significantly more in 2020-21?,” Modi sought to say.
“When we formulated our economic response to the Covid-19 pandemic, we wanted to ensure that our solutions do not follow a ‘one size fits all’ model. For a federal country of continental dimensions, finding policy instruments at the national level to promote reforms by State Governments is indeed challenging. But, we had faith in the robustness of our federal polity and we moved ahead in the spirit of Centre-State bhagidari,” Modi wrote detailing the said “bhagidari’’ and highlighted some paragraphs in his blog.
“In May 2020, as part of the Aatmanirbhar Bharat package, the Government of India announced that State Governments would be allowed enhanced borrowing for 2020-21. An extra 2 per cent of GSDP was allowed, of which 1 per cent was made conditional on the implementation of certain economic reforms,” said the Prime Minister.
Modi said this nudge for reform is rare in Indian public finance.
“This was a nudge, incentivising the States to adopt progressive policies to avail additional funds. The results of this exercise are not only encouraging but also run contrary to the notion that there are limited takers for sound economic policies, he said.
The four reforms to which additional borrowings were linked (with 0.25 per cent of GDP tied to each one) had two characteristics. Firstly, each of the reforms was linked to improving the Ease of Living to the public and particularly the poor, the vulnerable, and the middle class. Secondly, they also promoted fiscal sustainability, the Prime Minister said, explaining reforms undertaken by the States.
The first reform under the ‘One Nation One Ration Card’ policy required State Governments to ensure that all ration cards in the State under the National Food Security Act (NFSA) were seeded with the Aadhaar number of all family members and that all Fair Price Shops had Electronic Point of Sale devices.
The main benefit from this is that migrant workers can draw their food ration from anywhere in the country.
The second reform, the Prime Minister said aimed at improving ease of doing business, required states to ensure that renewal of business-related licences under 7 Acts is made automatic, online and non-discretionary on mere payment of fees.
Another requirement was implementation of a computerised random inspection system and prior notice of inspection to reduce harassment and corruption under a further 12 Acts.
This reform (covering 19 laws) is of particular help to micro and small enterprises, who suffer the most from the burden of the ‘inspector raj’.
Modi said 20 States completed this reform and were allowed additional borrowing of Rs. 39,521 crore.
The third reform required states to notify floor rates of property tax and of water & sewerage charges, in consonance with stamp duty guideline values for property transactions and current costs respectively, in urban areas. This would enable better quality of services to the urban poor and middle class, support better infrastructure and stimulate growth.
He said 11 States completed these reforms and were granted additional borrowing of Rs 15,957 crore. The fourth reform was the introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers. The requirement was for formulation of a state-wide scheme with actual implementation in one district on a pilot basis by year end. Additional borrowing of 0.15 per cent of GSDP was linked to this.
13 States implemented at least one component, while 6 states implemented the DBT component. As a result, Rs. 13,201 crore of additional borrowings was permitted.
Overall, 23 States availed of additional borrowings of Rs 1.06 lakh crore out of a potential of Rs. 2.14 lakh crore, the Prime Minister said.