Mains Paper 3: Economy
Prelims level: Gross State Domestic Product
Mains level: Allocations of the funds to States by Centre
Over the past few weeks, several state governments had urged the Centre
to relax the fiscal deficit limits imposed on them on account of the stress
in their finances.
On Sunday, the finance minister acceded to their request, raising their
borrowing limit to 5 per cent of GSDP, up from 3 per cent before.
Gross State Domestic Product:
Gross State Domestic Product (GSDP) is defined as a measure, in monetary
terms, of the volume of all goods and services produced within the
boundaries of the State during a given period of time, accounted without
Fiscal deficit means the difference between the total income of the
government (total taxes and non-debt capital receipts) and its total
In itself, this is a welcome move. Allowing states to borrow an
additional Rs 4.28 lakh crore this year will provide them the resources to
fight this pandemic and perhaps, help them maintain their budgeted
But imposing conditions for availing these additional borrowings may not
be the prudent approach in the current situation. As some states may not be
able to carry out the reforms, making them ineligible to borrow more, they
will be forced to cut back on their spending, imparting a contractionary
fiscal impulse at a time when government spending is the only engine that
can drive the economy.
Contingent on targets:
As per the guidelines laid down by the Centre, the first tranche of
additional borrowings amounting to 0.5 per cent of GSDP will be
unconditional. However, the next 1 per cent of borrowing will be allowed in
four tranches, linked to reforms in the areas of ease of doing business, one
nation one ration card, power distribution, and urban local bodies.
States will be allowed to borrow the............................
State governments should be encouraged into undertaking contentious
reforms, of course. But attaching conditions to their borrowings, especially
at a time like this, is at best avoided. States, who are at the frontline of
fighting this pandemic, need to be assured of adequate resources.
The conditions imposed on the additional borrowings should be eased,
allowing them to borrow freely during this period. Allowing states to borrow
more is welcome, but conditionalities imposed by the Centre should be eased.
Q1. With reference to the Vitamin D, consider the following
statements: 1. Vitamin D is known to modulate the response of white blood cells,
preventing them from releasing too many inflammatory cytokines.
2. A new study has found an association between low average levels of vitamin D
and high numbers of Covid-19 cases and mortality rates across 20 European
Which of the statements given above is/are correct? (a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2