State govts cry foul over riders on market borrowings

The Centre’s move to make market borrowings of states conditional beyond a point has infuriated the latter. This has prompted some states to say that it is an assault on the federal structure of the country. The Union government has allowed states to borrow till their fiscal deficit hits five per cent of their respective gross state domestic product (GSDP). However, they are allowed to tap market borrowings unconditionally till their fiscal deficit reaches 3.5 per cent of GSDP.

Beyond that, they have to meet four parameters — One Nation, One Ration Card, ease of doing business, power sector reforms and urban local body reforms – for availing an extra 0.25 per cent against each of the parameters. If they meet three of the four parameters, they can also avail of market borrowings till their fiscal deficit reaches an additional 0.5 per cent of GSDP.

Tamil Nadu chief minister Edappadi K Palaniswami said it will constrain the state governments to get funds in the wake of serious financial situation.

He said the state government has already undertaken reforms in many areas without expecting any financial assistance, but there are some areas, most specifically power distribution reforms, which are politically sensitive. Under power sector reforms, one of the conditions is that states should provide power subsidy to farmers through direct benefit transfer.

Palaniswami said the state government is strongly opposed to the idea of removing free power supply to farmers. It has been the stand of the state that the mode of disbursement of subsidy should be left to the state governments themselves, Palaniswami said.

“Since a consensus is yet to emerge on these issues, I request you to instruct the ministries concerned to remove the requirements to reform the power sector from among the proposed conditionalities. Also, allow greater latitude to states in implementing a reforms agenda,” he said in a letter to Prime Minister Narendra Modi.

Kerala finance minister Thomas Isaac said making additional loans conditional was a bad precedent. “In future, severe conditions may be imposed on even normal loans,” he said.

He added that while the Centre included imposition of conditions on market borrowing in the terms of reference of the 15th Finance Commission, the commission rejected it.

“Now, the Centre has used the pandemic to introduce conditions on states market borrowings. It is a bad precedent,” he added.

Telangana Chief Minister K Chandrasekhar Rao accused the Centre of treating the states like “beggars” and imposing “laughable” conditions for increasing borrowing limits. He reminded the Centre that even loans have to be repaid by states and the Centre would not give even a penny.

“It is very unfortunate that the Centre is pushing for reforms by holding a knife to the state governments’ throats,” he said.

He said if the conditions laid down by the Centre for reforms in various sectors were implemented, it would pose a burden on the people.

After Sitharaman had announced her last package, which included raising the borrowing limit of states with conditions, West Bengal finance minister Amit Mitra said this is another smokescreen.

“Every time we go to the market to borrow, the Centre has to okay it. So, where is the need to attach conditions. This is being done to undermine the states,” Mitra alleged.

Sitharaman, in an interview to Business Standard, had said those conditions were discussed by even the finance commission.

“What are those conditions? One portable ration card. Is it not something which we want?” she wondered.

On power reforms, she said after the Modi government came to power in 2014 , the UDAY scheme was brought in with the intention to help every state ensure the viability of discoms.

“Is it still not a problem? Look at the emergency with which I have to infuse ~90,000 crore for discoms. I could have spent this on anything else. I am asking for that reform. Who is it going to benefit? End consumers – you, me, farmers, small units and businessmen,” she said.

With Assembly elections looming in Tamil Nadu (the state goes to polls in May 2021), it is not hard to understand why the state government has taken umbrage over the advise of the Centre to stop free power as one of the sub-conditions.

Free power has been the cornerstone of politics in the state and the opposition Dravida Munnetra Kazhagam (DMK) is waiting for an opportunity to attack the state government on a variety of issues. Withdrawing free power will adversely affect the state government’s popularity, especially with the low-income groups.

The same is the case with Telangana. Although there is no election on the horizon immediately, Rao came back to power on the ambitious promise of 24-hour power supply to farmers. In addition, the state subsidises scheduled caste and scheduled tribe consumers.

With one of the conditions mandating direct benefit transfer to consumers rather than a subsidy, the state government feels an important political tool will be lost.

Although Rao’s party, the Telangana Rashtra Samithi (TRS), had been supportive of the BJP, it has changed its tune recently after several important seats in Telangana were lost by it to the BJP.

For instance, K Kavitha, the chief minister ’s daughter, lost the Nizamabad Lok Sabha seat to the BJP. Since then, the two parties have been on a warpath. In fact, the Telangana assembly was one of the first to pass a resolution against the Citizenship Amendment Act.

AMIT MITRA West Bengal finance minister

Every time we go to the market to borrow, the Centre has to okay it. So where is the need to attach conditions? This is being done to undermine the states”

THOMAS ISAAC Kerala finance minister

Now the Centre has used the pandemic crisis to introduce conditions on states’ market borrowing. (It is) a bad precedent”

K CHANDRASEKHAR RAO Telangana chief minister

It is very unfortunate that the Centre is pushing for reforms holding a knife to the state governments’ throat”

EDAPPADI K PALANISWAMI Tamil Nadu chief minister

The state has already undertaken reforms in many areas without expecting any financial aid, but there are some areas that are politically sensitive”