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Fiscal consolidation targets of states

The Fiscal Deficit target for States for 2009-10 has been relaxed from 3% to 4% of States’ respective Gross State Domestic Product (GSDP), to enable States to borrow upto 4% of their GSDP as projected under the Debt Consolidation and Relief Facility (DCRF) guidelines, to undertake capital expenditure.

Twelfth Finance Commission (TFC) recommended the DCRF over the period 2005-10. The Scheme has two components – (i) consolidation of central loans (from Ministry of Finance) contracted till 31.3.2004 and outstanding as on 31.3.2005, and (ii) provision of interest relief and grant of debt waiver to States based on their fiscal performance. Consolidation of central loans has given interest relief to States. Debt waiver is granted to States based on their fiscal performance, for which an assessment is made annually. Benefits under DCRF helped States by easing debt and interest pressures, and also incentivised States to follow the path of fiscal correction. This has facilitated the states to focus investment on development.

Higher borrowings on account of relaxation of fiscal deficit target for 2009-10 will enable states to commit funds for capital expenditure, which will help in accelerating the growth revival in the medium term.

This information was given by Minister of State for Finance, Shri Namo Narain Meena in written reply to a question raised in Rajya Sabha today.


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