Cabinet approves recommendations of 14th Finance Commission

The Cabinet has approved the 14th Finance Commission’s recommendations on fiscal deficit targets and additional targets for states during 2015-20.

Details:

• The government approved a fiscal deficit target of 3% for states, as recommended by the FC for the 2015-20 period.
• Besides, the Commission has also provided for year-to-year flexibility for additional deficit. It has provided additional headroom to a maximum of 0.5% over and above the normal limit of 3% in any given year to states that have had a favourable debt-GSDP ratio and interest payments-revenue receipts ratio in the previous two years.
• However, the flexibility in availing the additional fiscal deficit will be available to a state if there is no revenue deficit in the year in which borrowing limits are to be fixed and immediately preceding year.
• Since the year 2015-16 is already over, the States will not get any benefit of additional borrowings for 2015-16. However, the implications for the remaining period of FFC award of 2016-17 to 2019-20, would depend upon respective States’ eligibility based on the criteria prescribed by FFC.
• If a State is not able to fully utilise its sanctioned fiscal deficit of 3% of GSDP in any particular year during the 2016-17 to 2018-19 of FFC award period, it will have the option of availing this un-utilised fiscal deficit amount (calculated in rupees) only in the following year but within FFC award period.

Financial implications:

There is no financial implication for Government of India as the borrowings are made by the respective State Governments within the fiscal deficit limits laid down by Finance Commission and incorporated in FRBMA of the States. However, the State will get additional space to raise borrowings which may result in much needed Government Expenditure for capital projects and infrastructure.