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Union Cabinet approves policy guidelines to allow state entities to directly borrow bilateral loans

The Union Cabinet has approved the policy guidelines to permit financially sound State Government entities to borrow directly from bilateral ODA (Official development Assistance) partners for the purpose of implementing vital infrastructure projects. The approval is subject to fulfilment of certain conditions and all repayments of loans and interests to the funding agencies.

As a corollary to the new decision, the Mumbai Metropolitan Region Development Authority (MMRDA) has been permitted to borrow directly from Japan International Cooperation Agency (JICA) Official Development Assistance (ODA) loan for implementation of Mumbai Trans Harbour Link (MTHL) project.

Present guidelines

At present, external assistance from bilateral and multilateral sources is received by the union government for:

  • projects/programmes in the Central sector;
  • projects executed by Central Public Sector Undertakings;
  • on behalf of the State Governments for State sector projects/programmes implemented by the State Governments and/or local bodies and public sector undertakings.

The existing guidelines prohibit State Government from borrowing directly from external agencies. In addition, the amount borrowed by the state governments would become a part of their FRBM (Fiscal Responsibility and Budget Management).

Salient highlights of new guidelines

  • The State government which gets the loan will furnish guarantee for the loan and the Government of India will provide counter guarantee for the loan.
  • The state entities can directly approach bilateral agencies and the funding would not fall under state FRBM target.
  • The eligibility criteria for state entities would be a revenue of over Rs 1,000 crore.
  • In case of infrastructure projects, the cost criteria will be Rs 5,000 crore.

Need

Major infrastructure projects of several State entities have huge funding requirements, and borrowing of the State Governments for implementing such projects exhausts their respective borrowing limits. Therefore, it was considered necessary to facilitate direct borrowing by the State Government entities from bilateral external agencies. As per the new guidelines, State entities can directly borrow and repay the loan without burdening the State exchequer.

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N K Singh panel submits report on changes in FRBM Act  

The Fiscal Responsibility and Budget Management (FRBM) Committee has submitted its 4 volume report on changes in FRBM Act, 2013 to the Union Finance Minister Arun Jaitley.

The 5 member committee was headed by N.K. Singh, former Revenue and Expenditure Secretary and former MP. Its member included RBI Governor Urjit Patel, Chief Economic Advisor Arvind Subramanian, former Finance Secretary Sumit Bose, and National Institute of Public Finance and Policy Director Rathin Roy.

Key Facts
  • The committee was constituted in May 2016 following Finance Minister Budget 2016-17 announcement. It was assigned task to review the working of the FRBM Act over last 12 years to suggest the way forward.
  • It was also tasked to examine the need and feasibility of having a ‘fiscal deficit range’ as the target in place of the existing fixed numbers (percentage of GDP) as fiscal deficit target.
  • The committee has kept in view the broad objective of fiscal consolidation and prudence and has suggested changes required in the context of the uncertainty and volatility in the global economy.
  • The first volume of the report addresses the issue of the fiscal roadmap, fiscal policy, international experience and recommendations therein.
  • The second volume refers to international experience especially from a lot of international organisations particularly OECD, the World Bank, ILO.
  • The third volume deals with Centre-State issues. The fourth volume deals with views of domain experts both from national and international appropriate for fiscal policy

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Union Government Constitute NK Singh Committee to review FRBM Act

The Union Government has constituted a five member committee to comprehensively review and give recommendations on the Fiscal Responsibility and Budget Management (FRBM) roadmap for the future.

Composition: The committee will be headed by Former Revenue Secretary and Rajya Sabha MP, NK Singh. Its members are former Finance and Revenue Secretary Sumit Bose, Chief Economic Adviser (CEC) Dr. Arvind Subramanian, Deputy Governor of RBI Urijit Patel and Director of National Institute Public Finance and Policy (NIPFP) Rathin Roy.

The committee was constituted as per the announcement made by the Union Finance Minister Arun Jaitley in his 2016-17 Budget speech. It will submit its Report to the Union Government by the 31st October, 2016.

Terms of Reference of the Committee

  • Review the working of the FRBM Act, 2003 over last 12 years and suggest the way forward.
  • The suggestions should be submitted keeping in view the broad objective of fiscal consolidation and prudence and the changes required in the context of the uncertainty and volatility in the global economy
  • Look into various factors, aspects, considerations going into determining the FRBM targets
  • Consider the possibility of replacing absolute fiscal deficit targets with a target range that may be adjusted in line with the overall credit trends in the economy.
  • Examine the need and feasibility of aligning the fiscal contraction and expansion with credit expansion or contraction respectively in the economy.

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