The Centre has put a check to the huge loans being drawn from various sources by the Andhra Pradesh government. As per the new regulation, the state government cannot take the required amount of loans and spend as it likes. The 15th Finance Commission recommended that the Centre decide the net borrowing ceiling for every state and ensure that all the loans should be within the prescribed limits.
The new rule says that every state can go for net borrowings of only 4% of the Gross Domestic Product (GDP) projected in a given financial year. In other words, it means the net loan limit can be known if the amount of debt repaid is subtracted from the entire loan taken in a financial year. Based on this condition, the Centre put the AP borrowing ceiling for the current fiscal at Rs 42,472 crore. The state cannot borrow more than this amount, including all types of loans.
The loans mentioned by the Centre include open market, loans taken from finance commissions, small savings, international support funds, provident fund, reserve funds, loans drawn against deposits. The Centre made it clear that a certain amount of the GDP should be spent as principal fund. If any state does not comply with this rule, 0.50 per cent of the loan limit would be cut.
According to the new rules put forward by the Centre, the Andhra Pradesh government will have to spend Rs 27,589 crore as investment expenditure. In case, it fails to do so, Rs 5,000 crore would be deducted from the loans the state would draw in the future.
Further, the Centre would also keep a vigil on the states and review the situation thrice in a financial year. If the state fails to follow the rules, it will be declared ineligible to go for borrowings.