Question 13GS2GS2

The restrictions imposed under Article 293 of the Constitution on borrowing powers, though constitutionally valid, may hinder fiscal autonomy of States and disrupt cooperative federalism. Discuss in the light of recent developments. (Answer in 250 words)

Main Body

Article 293 of the constitution impose restriction on borrowing by states with out the prescence of the centre. This however has led to fiscal restrictions for the states.

Factors hindering State's fiscal autonomy:

1Inability of state to accumulate market to borrow. (ET) Restrictions placed in Kerala for making use of Masala Bonds.

2Reducing fiscal health due to outstanding liabilities of states (ET) Fiscal health Index, glen Punjab at the bottom.

3Reducing vertical devolution to states making borrowing necessary. (ET) 15th Finance commission only devolved 41% compared to 49% to 14th FC.

4Horizontal devolution criteria by finance commission hampering authority (ET) 45% weightage in come distance, making borrowing necessary for states who make borrowing necessary.

5Increased cess and surcharge by centre which are subject to devolution impacting fiscal health of state.

6Recent court case by Kerala government to ensure with compensation in GST regime due to fall in revenue. Hence RPA, 1951 should be kept abreast to changing societal needs to decriminalize politics in India

1Sticking to fiscal deficit target under Fiscal responsibility of budget management act. (ET) states like Punjab have consistently circumvented

2Spending on revenue expenditure over capital expenditure by state makes borrowing limit necessary. (ET) 60% capital expenditure in Kerala (3) Increasing outstanding liabilities that might lead to financial emergency (ET) 85% of Kerals's budget goes to repayment (4) Before based borrowing limits External aide on power of unlimited external borrowing is allowed.

The way forward, would be then to assign the 16th finance commission to close its states needs and alloted calibrated specific limits for economic equity the states.

1Sticking to fiscal deficit target under Fiscal responsibility of budget management act. (ET) states like Punjab have consistently circumvented

2Spending on revenue expenditure over capital expenditure by state makes borrowing limit necessary. (ET) 60% capital expenditure in Kerala

3Increasing outstanding liabilities that might lead to financial emergency (ET) 85% of Kerala's budget goes to repayment

4Before based borrowing limits External aide on power of unlimited external borrowing is allowed.

343 words4 paragraphs

Examiner score

1/10

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Page 32

Topper

Aditya Narayan H

AIR 68

Subject & Paper

GS2GS2

Topic

Centre-State Financial Relations

Article 293 and Borrowing Powers

Restrictions on State Borrowing

Writing Stats

343

Total words

Paragraphs

analytical

Tone