11-11-2024 – ENROUND CURRENT AFFAIRS

1.Net borrowing ceiling
The central government, in 2023, ( Imposed a ‘Net Borrowing Ceiling’ NBC) on the State of Kerala to restrict he maximum possible borrowing that the State can make under the law. This ceiling is 3% of the projected Gross State Domestic Product (GSDP) for FY2023-24. The NBC now encompasses all borrowing avenues, including open market loans, financial institution loans, and liabilities from the public account of the State. Furthermore, to stop States from circumventing the borrowing cap through State-owned enterprises, the ceiling has been extended to cover certain borrowings by these entities as well.


Chapter II of Part XII of the Constitution deals with the borrowing powers of the Centre and States. Article 292 speaks about the borrowingpower of the central government which entitlesthe central government to borrow loans upon thesecurity of the Consolidated Fund of India.

Article 293 empowers the State government to borrow within the territory of India upon the security of the consolidated fund of the State.

In both cases, the extent of borrowing may be fixedfrom time to time by a law enacted by Parliamentand the State legislature, respectively.

As in Article 293(2), the Government of India may grant loans to any State subject to conditions laid down by any law made by Parliament up to the limits fixed under Article 292.

The central government can also provide guarantees upon the Consolidated Fund of Indian respect of loans raised by any State.

Article293(3) imposes a restriction on the State government if the repayment of loans or a guarantee which has been given by the Government of India (if taken by the predecessor or government is still outstanding). In such a case, the consent of the central government is essential to raise such a loan.

Net borrowing Ceiling (NBC)

The net borrowing ceiling of states in India refers to the limit imposed on the amount of money that state governments can borrow in a financial year.

  • This ceiling is crucial for maintaining fiscal discipline and ensuring that states do not accumulate unsustainable levels of debt.
  • The framework for these ceilings is influenced by several factors, including recommendations from the Finance Commission, the Fiscal Responsibility and Budget Management (FRBM) Act, and specific guidelines issued by the central government, particularly the Ministry of Finance.

Basis of the Net Borrowing Ceiling:

  • Fiscal Responsibility Legislation: Both the central and state governments in India are guided by the FRBM Act, which sets targets for fiscal deficits to ensure fiscal discipline. For states, the FRBM mandates a fiscal deficit limit of 3% of the Gross State Domestic Product (GSDP).
  • Finance Commission Recommendations: The Finance Commission, which is constituted every five years, recommends how the central taxes are to be divided between the centre and the states and suggests measures to maintain fiscal stability. It also provides recommendations regarding the borrowing limits of states.
  • Central Government Guidelines: The central government, through the Department of Expenditure in the Ministry of Finance, sets the annual borrowing limits for each state based on a formula that considers the state’s GSDP, existing debt levels, fiscal discipline, and other relevant factors. These limits can be revised in response to special circumstances, such as natural disasters or significant economic downturns.