Titled, "Reforms by Conviction and Incentives", Prime Minister Narendra Modi on his blog on Tuesday wrote, 23 states availed of additional borrowings of Rs.1.06 lakh crore out of a potential Rs 2.14 lakh crore through implementing a set of reforms that allowed them to borrow more from the Centre. He said states were able to raise an extra Rs 1.06 lakh crores in 2020-21 through the reforms.
"This significant increase in availability of resources was made possible by an approach of Centre-State bhagidari," PM Modi wrote.
He said, the Covid-19 pandemic has come with whole new set of challenges to Governments across the world in terms of policy-making.
In May 2020, as part of the Aatmanirbhar Bharat package, the Government of India announced that the states would be allowed enhanced borrowing for 2020-21. An extra 2% of GSDP was allowed, of which 1% was made conditional on the implementation of certain economic reforms.
He appreciated saying, "This nudge for reform is rare in Indian public finance. This was a nudge, incentivising the states to adopt progressive policies to avail additional funds. The results of this exercise are not only encouraging but also run contrary to the notion that there are limited takers for sound economic policies."
He wrote that the reforms were linked to "improving the Ease of Living to the public and particularly the poor, the vulnerable, and the middle class. Secondly, they also promoted fiscal sustainability". A financial incentive of .25 per cent was attached to each reform.
The first reform under the ‘One Nation One Ration Card’ policy required State Governments to ensure that all ration cards in the State under the National Food Security Act (NFSA) were seeded with the Aadhaar number of all family members and that all Fair Price Shops had Electronic Point of Sale devices. Highlighting its advantage, he wrote, "the main benefit from this is that migrant workers can draw their food ration from anywhere in the country."
The second reform, aimed at improving ease of doing business, required states to ensure that renewal of business-related licences under 7 Acts is made automatic, online and non-discretionary on mere payment of fees. "This reform (covering 19 laws) is of particular help to micro and small enterprises, who suffer the most from the burden of the ‘inspector raj'. It also promotes an improved investment climate, greater investment and faster growth. 20 states completed this reform and were allowed additional borrowing of Rs. 39,521 crores," he wrote expaining its importance.
The third reform required states to notify floor rates of property tax and of water and sewerage charges, in consonance with stamp duty guideline values for property transactions and current costs respectively, in urban areas. While, the fourth reform was introduction of Direct Benefit Transfer (DBT) in lieu of free electricity supply to farmers.
He concluded writing, "this was made possible due to Centre's approach of Sabka Saath, Sabka Vikas and Sabka Vishwas. "Officials who have been working on these reforms suggest that without this incentive of additional funds, enactment of these policies would have taken years. India has seen a model of ‘reforms by stealth and compulsion’. This is a new model of ‘reforms by conviction and incentives’." he added.