22 NPS States Get Additional Borrowing Room For Pension Contribution

The government allowed 22 states to borrow more to meet contributions under the newer National Pension System, according a year-end review by the Finance Ministry, even as opposition-governed states are switching back to the costlier old pension scheme.

An extra borrowing ceiling of Rs 60,876.80 crore was allowed to these states in 2023-24 as on Oct. 27 for NPS contribution by complying states, the ministry said in a post from its X handle. The additional limit for NPS contribution would be over and above their existing borrowing ceiling.

The fresh resources to meet pension liabilities are aimed at encouraging adoption of NPS when the opposition ruled states are promising to revert to the older pension scheme or OPS that makes the government foot the entire bill. Five states, Himachal Pradesh, Punjab, Chhattisgarh, Jharkhand, and Rajasthan, have already opted for OPS. Punjab, however, informed the central government that it continues to pay staff and government contributions to the NPS.

The central government allows states to borrow to bridge their spending shortfall. But the 15th Finance Commission recommends that states stay within a fiscal deficit of 3% of the gross state domestic product.

This sets the normal net borrowing ceiling for states at 3% of GSDP, which comes up to Rs 8,59,988 crore for FY24, according to the ministry. An additional borrowing of 0.5% of GSDP is permitted if states undertake certain reforms in the power sector.

According to PRS Legislative Research, 10 states in the current financial year have estimated their fiscal deficit to be lower than 3% of their GSDP. Between 2021-22 and 2025-26, if a state borrows less than the fiscal deficit allowed in one year, it can borrow above the limit to that extent in any of the following years. GST compensation loans and other lending by the central government for capital outlay are also not included in states’ fiscal deficit

States with relatively high fiscal deficit include Manipur, Jammu and Kashmir, Punjab, Himachal Pradesh, Sikkim, Goa, Madhya Pradesh, and Rajasthan, according to PRS.