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Mumbai, April 8: Even as the Reserve Bank of India (RBI) has set up an Advisory Committee on Ways and Means Advances to state governments to revisit the ways and means for states, C Rangarajan, chairman, Economic Advisory Council to the Prime Minister, has suggested that the overall limit to States’ annual borrowing from all sources should be supervised by an independent body like a Loan Council.
According to Dr Rangarajan, the council should have representatives from the ministry of finance, Planning Commission, RBI and the state governments. “This Council may, at the beginning of each year, announce borrowing limits for each state, taking into account the sustainability considerations. Our suggestion for de-linking grants and loans in plan assistance, as these need to be determined on different principles, is part of the reform of the borrowing regime,” said Dr Rangarajan in his inaugural address at 16th Conference of the State Finance Secretaries at the RBI.
The 12th Finance Commission has argued that important institutional changes are required to tackle the structural problems in managing government finances. One central change relates to the regime of government borrowing. It has recommended that states must decide their annual borrowing programme, within the framework of their respective fiscal responsibility legislations. “If the states move on a path of fiscal correction, the market borrowing programme of the states will be sustainable,’’ said Dr Rangarajan.
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