Did Telangana leverage FRBM rules to raise loans? | Hyderabad News

Even like Telangana got some respite with Tuesday’s auction, the state is still in the grip of a severe financial crisis after the Center halted open market borrowing, citing FRBM Rules and the stock of public debt. Sribala Vadlapatla explains key points about FRBMs, OMBs, etc.
What are the Centre’s objections to the borrowings from Telangana?
He said the state has exhausted all FRBM rules to raise loans and, at the same time, denies that off-budget borrowing is subject to FRBM rules.
What does the Constitution say about borrowing?
According to Section 292 of the Constitution, the Union Government may borrow amounts specified by Parliament from time to time. According to Article 293, the Center can incur both external and internal debts, while state governments can only incur internal debts.
According to the recommendations of the 12th Finance Committee, the Center facilitates States’ access to external financing by providing a guarantee for these loans. All states in the general category borrow from multilateral and bilateral agencies (World Bank, Asian Development Bank, etc.)
How are borrowings related to FRBM?
In 2000, the government of Atal Bihari Vajpayee introduced the Fiscal Accountability and Fiscal Management (FRBM) Bill to Parliament to provide legal support for fiscal discipline. It was adopted in 2003. It sets targets that the government must meet to reduce budget deficits. The budget deficit, expressed as a percentage of GDP, is the amount of money spent by the government in excess of its revenue.
What are the objectives of the law?
The FRBM law obliges the central government to reduce its budget deficit to 3% of GDP, which would mean that there should be a balance between spending, revenue and borrowing. The original deadline for reaching the 3% target was 2007-2008, but it has been pushed back several times since then. In 2018, the deadline was again pushed back to 2020-21.
What are the exemptions?
The target was relaxed to 3.5% in the 2021-22 budget, as permitted by the FRBM law. To deviate from the fiscal consolidation roadmap, the Center invoked the escape clause. The option allows the government to increase the deficit by 0.5 percentage points in times of national emergency
What is the new objective?
Due to higher spending and lower revenue as a result of Covid-19, the FY21 figure was 9.3% of GDP. Last year, the government amended the FRBM law to allow the budget deficit to exceed the authorized limit. The Center is targeting a budget deficit of 6.8% for the current fiscal year, which will be gradually reduced to less than 4.5% over the next four years.
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