NEW DELHI: The Delhi government will now be able to borrow funds from the open market for its infrastructure and other projects under the state development loans provision. Managed by the Reserve Bank of India (RBI), they are state financial instruments that allow borrowing at a much lesser interest rate of around 7% against 12-13% in the alternative routes.
The RBI and the Delhi government signed a memorandum of understanding (MoU) on Monday that will markedly reshape public financial management framework in the city. According to the terms of this agreement, the RBI can now function as the banker, debt manager, and financial agent of the government and facilitate its market borrowings through state development loans.
Chief Minister Rekha Gupta, who holds the finance portfolio, described it as a long-overdue reform. “This agreement marks a historic correction in Delhi’s financial governance. Despite being the nation’s capital, Delhi was denied the benefits of structured RBI banking and market borrowings for years,” she said, adding that earlier governments did not show the intent to adopt globally accepted norms of fiscal prudence.
This agreement also opens parking of surplus funds of the government through RBI mechanisms as investments, which can be made on daily basis. This process will allow the government to earn interests on funds that are kept idle hitherto.
The RBI has also assured the government of low-cost liquidity support through the ways and means advances route and the special drawing facilities, which are directed at addressing temporary cash flow mismatches.
“Our government has placed fiscal discipline, transparency, and sustainability at the core of governance,” Gupta said, adding that she had been following with the Centre on enabling this provision.