States call conditions on market borrowings an assault on federal structure

They says the conditions will constrain the state govts' ability to find funds in the wake of a serious financial situation

The Centre's move to make market borrowings by states conditional beyond a point has infuriated the latter, which say that it is an assault on the federal structure of the country.

The union government has allowed the 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 borrowing 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 extra 0.25 per cent against each of the parameters. If they meet three of the four parameters, they can also avail market borrowings till their fiscal deficit reaches 0.5 per cent of GSDP. 

Tamil Nadu Chief Minister Edappadi K Palaniswami said it will constrain the state governments' ability to find funds in the wake of a serious financial situation.

He added that the state government has already undertaken reforms in many areas without expecting any financial assistance, but some areas, most specifically power distribution reforms, are politically sensitive.

Under power sector reforms, one of the conditions is that the 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 and it has been the stand of the State government that the mode of disbursement of subsidy should be left to the states 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 and also allow greater latitude to states in implementing a reform 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 had included imposition of conditions on market borrowing in the terms of reference of 15th finance commission, the Commission rejected it.

"Now the Centre has used the pandemic crisis to introduce conditions on states market borrowing. (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 though the loans have to be repaid by the states, the Centre would not give even a penny.

"It is very unfortunate that the Centre is pushing for reforms 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 impose a burden on people.

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

"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 Modi government came to power in 2014 , the UDAY  scheme was brought in with the intention to help every states to ensure that viability of discoms.

"Is it still not a problem? Look at the emergency with which I have to infuse Rs 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, businessmen," she said.

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

Free power has been a cornerstone of politics in the state and the opposition Dravida Munnetra Kazhagam 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. Though there is no election on the horizon immediately, Rao came back to power on the 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 to it.

Although 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 the war path. Telangana assembly was one of the first to pass a resolution against the Citizenship Amendment Act.

(with inputs from T E Narasimhan, Dilasha Seth, Aditi Phadnis, and Indivjal Dhasmana)