State governments can now borrow an additional 0.5 per cent of their Gross State Domestic Product to tackle the economic slowdown.
The states will be able to raise additional open market loans of about Rs 21,000 crore in the current year, according to the 2009-10 budget estimates presented today.
This has been made possible as the Finance Minister, Pranab Mukherjee, relaxed the fiscal deficit target under the Fiscal Responsibility and Budget Management (FRBM) Act to four per cent of the states' GDP from 3.5 per cent.
Thus, the total additionality in the plan expenditure by Centre and the states put together would be Rs 61,000 crore over the interim budget.
"I do believe that this fiscal expansion will go a long way in reversing the impact of slowdown and accelerate growth revival in the medium term," Mukherjee said.
According to budget estimates of 2009-10, the states' share of taxes and duties is expected to increase to Rs 1,64,361 crore against Rs 1,60,179 crore in 2008-09.
The total grants and loans by the centre to the states are proposed to increase to Rs 1,52,051 crore in the current fiscal against Rs 1,35,190 crore in the last fiscal.
The non-plan grants to states have been proposed at Rs 48,570 crore compared to Rs 38,421 crore in 2008-09. However, the non-plan loans remain unchanged at Rs 89 crore.
According to the budget estimates, the planned central assistance to states and union territories is proposed at 81,256 crore in the current fiscal against Rs 74,703 crore in the last fiscal.
Similarly, the assistance to states and union territories for the central and centrally-sponsored schemes is proposed to increase to Rs 22,136 crore from Rs 21,977 crore.
