Brain Booster for UPSC & State PCS Examination (Topic: Reform Linked Borrowing)

Brain Booster for UPSC & State PCS Examination

Current Affairs Brain Booster for UPSC & State PCS Examination

Topic: Reform Linked Borrowing

Reform Linked Borrowing

Why in News?

  • Under the reform-linked borrowing window, Indian states were able to borrow an extra Rs. 1.06 lakh crore in 2020-21 (FY21).

Key Points

  • In May 2020, under the Aatmanirbhar Bharat package, the Centre had permitted States governments to borrow an additional 2% of Gross State Domestic Product (GSDP), but half of it (1%) was contingent on implementation of four specified reforms.
  • Implementation of One Nation One Ration Card System,
  • Ease of doing business reform,
  • Urban Local body/ utility reforms and
  • Power Sector reforms.
  • Twenty three States availed of additional borrowings of Rs. 1.06 lakh crore out of a potential Rs. 2.14 lakh crore.

‘One Nation One Ration Card’ Reforms

  • The first reform under the ‘One Nation One Ration Card’ policy required State Governments to ensure that all ration cards in the State under the National Food Security Act (NFSA) were seeded with the Aadhaar number of all family members and that all Fair Price Shops had Electronic Point of Sale devices.
  • The main benefit from this is that migrant workers can draw their food ration from anywhere in the country. Apart from these benefits to citizens, there is the financial benefit from the elimination of bogus cards & duplicate members.
  • 17 states completed this reform and were granted additional borrowings amounting to Rs. 37,600 crores.

Ease of Doing Business

  • The second reform, aimed at improving ease of doing business, required states to ensure that renewal of business-related licences under 7 Acts is made automatic, online and non-discretionary on mere payment of fees.
  • Another requirement was implementation of a computerized random inspection system and prior notice of inspection to reduce harassment and corruption under a further 12 Acts.
  • This reform (covering 19 laws) is of particular help to micro and small enterprises, who suffer the most from the burden of the ‘inspector raj’. It also promotes an improved investment climate, greater investment and faster growth.
  • 20 states completed this reform and were allowed additional borrowing of Rs. 39,521 crores.

Urban Local body/ utility Reforms

  • The third reform required states to notify floor rates of property tax and of water & sewerage charges, in consonance with stamp duty guideline values for property transactions and current costs respectively, in urban areas.
  • This would enable better quality of services to the urban poor and middle class, support better infrastructure and stimulate growth.
  • Property tax is also progressive in its incidence and thus the poor in urban areas would benefit the most. This reform also benefits municipal staff who often face delay in payment of wages.
  • 11 states completed these reforms and were granted additional borrowing of Rs. 15,957 crores.

Power Sector Reforms

  • The fourth reform was introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers. The requirement was for formulation of a state-wide scheme with actual implementation in one district on a pilot basis by year end.
  • Additional borrowing of 0.15% of GSDP was linked to this.
  • A component was also provided for reduction in technical & commercial losses and another for reducing the gap between revenues and costs (0.05% of GSDP for each).
  • This improves the finances of distribution companies, promotes conservation of water and energy and improves service quality through better financial and technical performance.
  • 13 states implemented at least one component, while 6 states implemented the DBT component.