India’s central bank surprised financial markets Thursday by maintaining status quo on interest rates for the first time in 11 monthsas financial stability concerns outweighed those surrounding inflation. However, it also warned investors once morest misreading the unexpected ‘pause’ as precursor to a likely return of the easy-money era
The Centre is considering relaxing the borrowing norm for states to give them one more year till FY27 to bring their ‘off-budget’ borrowing within the annual budget by repaying such loans.
Many states have already started the clean-up, helping reduce the consolidated off-budget borrowings of the states to ₹18,500 crore in FY23 from ₹67,000 crore in FY22.
The Centre cleaned up its own budget last year when it paid off all the off-budget borrowings by repaying loans such as those taken by the Food Corporation of India.
“The off-the-budget borrowings have come down considerably following strict scrutiny last year,” a senior official told ET. “So (states) are being given one more year to adjust their off-the-budget borrowings.” Off-budget borrowings refer to loans taken by state-run entities where the principal and interest are serviced out of the state’s budget.
The Centre had in FY22 issued guidelines saying such borrowings will be considered as part of the overall borrowings of a state to discourage off-budget funding.
States are allowed to borrow up to 3.5% of their respective state GDP and an additional 0.5% if they implement mandated power sector reforms.
Following protests from the states, the Centre allowed four years till March 2026 to adjust their accumulated off-budget borrowings. This is now being extended by one more year.
The relaxation will give more headroom for the states to tap the market as their borrowings for the current fiscal year (FY24) is expected to go up by 28% to ₹6.7 lakh crore.
The off-budget debt was subjected to strict oversight following the Centre noticed many states were taking loans through their institutions, which was resulting in an incorrect assessment of their finances.
This resulted in reduced borrowings by many states including Telangana, Kerala, Uttar Pradesh and Tamil Nadu, among others.
The official said the purpose of the restriction was to ensure transparent practices by the states and once the states have declared such borrowings and owned such practices and liabilities, an additional year will be given for adjusting these borrowings in their budget.
According to ratings agency ICRA, Telangana’s share in such borrowings was highest at ₹35,300 crore, followed by Kerala at ₹14,300 crore.
The net borrowings through state government securities (SGS) in the last fiscal was ₹5.2 lakh crore.
The Reserve Bank of India (RBI) has already pegged their gross issuance at ₹2 lakh crore for the first quarter of FY24.
In the Union Budget for FY24, the Centre increased the allocation for the interest-free capital expenditure loans to states to ₹1.3 lakh crore from ₹76,000 crore in the revised estimates. The enhanced amount will be over and above the normal borrowing limit.
Kumarakom: The basic UPI services will continue to remain free, and India will reach an agreement with some of the countries by the end of 2023 to start a discussion on remittances and payments, said Dilip Asbe, managing director & CEO, National Payments Corporation of India (NPCI).
“The basic services of UPI will continue to remain free. Work is on with the government for incentives,” he told reporters. “But the value-added services of UPI, where the ecosystem needs some incentives to drive the adoption – whether it is mandate and credit – that’s how the benefits will be accrued and the larger benefits for merchants and consumers would come from that.”
On the payment options for consumers, he said the Reserve Bank of India is clear that the consumer should have a choice of payments.
“I will use my card as I like it and I think that is my right. There is RuPay card and other international card schemes, so the consumer will choose the choice of payments,” he said, pointing out that earlier the wallets were close loop systems.
“.. now with RBI intervention, the wallets are interoperable. So now I have PayTM working with my PhonePay wallet, I can go back and scan any QR code,” he said, adding that similarly, merchants do not have to go back and tie up with each wallet provider to give access to their customers.
Speaking at the sidelines of G20 Sherpa meeting in Kumarakom, he said cross-border real-time remittances is a G20 theme in terms of access, cost, and affordability. “The G20 is a great forum for the government and regulator. Agreements will be reached with some of the countries before the end of this calendar year so that we start the conversation for the remittances and payments,” he said.
India and Singapore linking their digital payments systems has shown that bank accounts in different countries can be interoperable, Asbe said. This was made possible when the two regulators and governments came together and defined the framework, rules and regulations, he added.The RBI had reached out to many regulators, and the Ministry of External Affairs was also reaching out through the various embassies. Asbe said this was a great architecture for the bilateral conversations for cross-border transactions such as payments and remittances.
