NEW DELHI: Prime Minister Narendra Modi in his Linkedin article on Tuesday said states had reaped the benefits of extra borrowings after the Centre, as part of the ‘Atmanirbhar package’, adopted the model of “reforms by conviction and incentives” in place of the past practice of “reforms by stealth and compulsion”.
Overall, 23 states availed of additional borrowings of Rs 1.06 lakh crore. “The Covid-19 pandemic has come with a whole new set of challenges to governments across the world in terms of policy-making. India is no exception. Raising enough resources for public welfare while ensuring sustainability is proving to be one of the biggest challenges,” the PM noted in his article, adding that the “significant increase in availability of resources (for states) was made possible by an approach of Centre-State bhagidari”.
Modi asserted that while the Centre formulated economic response to Covid-19, the aim was to ensure that solutions do not follow a ‘one size fits all’ model. “For a federal country of continental dimensions, finding policy instruments at the national level to promote reforms by state governments is indeed challenging. But, we had faith in the robustness of our federal polity,” he said.
The PM stated that in May 2020 the Centre announced that states would be allowed enhanced borrowing for 2020-21. “An extra 2% of GSDP was allowed, of which 1% was made conditional on the implementation of certain economic reforms. This nudge for reform is rare in Indian public finance. This was a nudge incentivising the states to adopt progressive policies to avail additional funds,” he noted.
He listed four reforms to which additional borrowings were linked (with 0.25% of GDP tied to each one). These included reform under the One Nation One Ration Card policy that required states to ensure all ration cards were seeded with Aadhaar numbers of family members, the reform aimed at improving ease of doing business which required states to ensure that renewal of business licences is made automatic, online and non-discretionary.