In the fifth and final tranche of Aatmanirbhar Bharat package, Finance Minister Nirmala Sitharaman Sunday announced support measures for states allowing them to raise their borrowing limit to 5 per cent of the Gross State Domestic Product (GSDP) from 3 per cent at present, translating into additional borrowing space of Rs 4.28 lakh crore.
However, the Centre has attached conditions for the increased borrowing space, permitting only 0.5 per cent of GSDP as an unconditional increase. Rest, 1 per cent will be in four tranches of 0.25 per cent, with each tranche linked to expenditure on ‘One Nation One Ration’, urban local body revenues, power distribution, ease of doing business reforms. The last 0.5 per cent to be permitted if at least three of four milestones are reached.
The finance minister said states have so far borrowed only 14 per cent of the authorised limit, while 86 per cent of the authorised borrowing remains unutilised. The states had been asking for greater fiscal headroom to tide over the crisis triggered by the pandemic. Indications are that this relaxation in borrowing limits would need an amendment to the FRBM Act.
Enlisting the previous releases to states, Sitharaman said revenue deficit grants worth Rs 12,390 crore were given to states on time in April and May despite the Centre’s stressed resources. Rs 11,092 crore has been given as advance release to states under SDRF in first week of April, while Rs 4,113 crore has been given by Health Ministry for direct anti-Covid activities. Devolution of taxes worth Rs 46,038 crore was done in April along with an increase in Ways & Means Advance limits of states by 60 per cent earlier, she said.
Sitharaman also said the government will open all sectors to the private sector including strategic sectors, and a new coherent policy in this regard will be unveiled. The proposed policy will notify the list of strategic sectors requiring the presence of at least one state-owned company along with the presence of the private sector. In all other sectors, the government plans to privatise public sector enterprises depending upon the feasibility. The number of enterprises in strategic sectors will ordinarily be only one to four and others will be privatised/merged/brought under holding company structure, it said.
While the government highlighted the need for a coherent policy, the direction for these announcements has already been set in the previous budgets. In the Union Budget 2019-20 presented on July 5, 2019, the finance minister spelt out the government’s intent to reduce its stake in non-financial public sector enterprises to below 51 per cent on a case to case basis. “Government is considering, in case where the undertaking is still to be retained in Government control, to go below 51% to an appropriate level on case to case basis. Government has also decided to modify the present policy of retaining 51% Government stake to retaining 51% stake inclusive of the stake of Government controlled institutions,” she had said on July 5, 2019.
The finance minister had also stressed upon the need for strategic sales and consolidation of PSUs in the non-financial space. “Strategic disinvestment of select CPSEs would continue to remain a priority of this Government. In view of current macro-economic parameters, the Government would not only re-initiate the process of strategic disinvestment of Air India but would offer more CPSEs for strategic participation by the private sector,” she had said. The government has already set in motion privatisation plans for large PSU companies BPCL, Air India, Container Corporation of India and Shipping Corporation of India. The Budget 2020-21 had estimated to raise Rs 2.1 lakh crore through stake sales next year, including plans to sell part of the Centre’s stake in Life Insurance Corporation (LIC) through an initial public offer (IPO), and sale of equity in the IDBI Bank to private, retail and institutional investors.
Another proposal of allowing companies to directly list on overseas stock exchanges has also been debated for many years in the Indian capital markets. The government had in March proposed changes to the Companies Act, 2013 providing for Indian companies to list securities directly on overseas stock exchanges. This was an enabling provision, and the government may now notify these changes to make them effective. This will allow companies in the start-up space to list abroad without having to first list on Indian stock exchanges.