New Delhi: With the economy witnessing a slowdown, the Planning Commission has recommended to the Finance Ministry that states be given more freedom to borrow from the market, even if the fiscal deficit touches 4% of state GDP.
In the second stimulus package, states were given the flexibility to stretch their fiscal deficit to 3.5% of state GDP from 3%.
“We are recommending to the finance ministry that (it) should agree to another half a per cent,” Planning Commission deputy chairman Montek Singh Ahluwalia said.
“In all the states, normally fiscal deficit is controlled at 3%. Earlier, (the finance ministry) agreed to three and a half per cent. We recognise this is an exceptional year,” Ahluwalia said.
Earlier at the pre-budget meeting with finance minister Pranab Mukherjee, state finance ministers had asked for more flexibility regarding market borrowings.
Most states in India have the fiscal responsibility and budget management acts in place, which bind them to meet the fiscal deficit targets.
The centre gives debt and interest relief under the debt consolidation and relief facility to states, which meet their targets set by the FRBM Acts.