States were able to raise an extra Rs 1.06 lakh crores in 2020-21 through implementing a set of reforms that allowed them to borrow more from the Centre, Prime Minister Narendra Modi said today. In a blog titled “Reforms by Conviction and Incentives”, he wrote that 23 states availed of additional borrowings of Rs. 1.06 lakh crores out of a potential of Rs. 2.14 lakh crores.
“This significant increase in availability of resources was made possible by an approach of Centre-State bhagidari,” PM Modi wrote.
In May 2020, the Centre had announced that states would be allowed enhanced borrowing for 2020-21 as part of the Aatmanirbhar Bharat (Self-Reliant India) package.
An extra 2 per cent of Gross Domestic Product of states was allowed, of which 1 per cent was conditional to the implementation of certain economic reforms.
This “nudge” for reform — offering financial incentives to adopt progressive policies — is rare in Indian public finance, PM Modi wrote. “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 added.
The reforms, he wrote, were linked to 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”. A financial incentive of .25 per cent was attached to each reform.
The first reform under the ‘One Nation One Ration Card’ policy required states to ensure that the cards were linked to Aadhaar numbers of family members and all Fair Price Shops had Electronic Point of Sale devices. This, PM Modi wrote, would enable migrant workers to draw their food ration from anywhere in the country.
“The second reform, 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,” he wrote.
“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 wrote.
The fourth reform was introduction of Direct Benefit Transfer or DBT in lieu of free electricity supply to farmers.