With the economy witnessing a slowdown, the Planning Commission has recommended to the finance ministry that states be given more freedom to borrow from the market, even if the fiscal deficit touches 4 per cent of state GDP.
In the second stimulus package, states were given the flexibility to stretch their fiscal deficit to 3.5 per cent of state GDP from 3 per cent.
"We are recommending to the finance ministry that (it) should agree to another half a per cent," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters.
"In all the states, normally fiscal deficit is controlled at three per cent. Earlier, the finance ministry agreed to 3.5 per cent. We recognise this is an exceptional year," Ahluwalia said.
Earlier at the pre-Budget meeting with Finance Minister Pranab Mukherjee, state finance ministers had asked for more flexibility regarding market borrowings.
Most states in India have the Fiscal Responsibility and Budget Management Acts in place, which bind them to meet the fiscal deficit targets.
The Centre gives debt and interest relief under the debt consolidation and relief facility to states, which meet their targets set by the FRBM Acts.
About the delayed monsoon and its impact on the economy, he said, "Late monsoon is a matter of concern. But I think it is too early to say anything. If it revives tomorrow and it becomes normal then the impact would be very, very small. The real issue is that we are speculating about monsoon."
When asked the second forecast, which projected 93 per cent rainfall, much below the normal level, he said, "Normally the normal level ranges between 80 per cent and this forecast . . . this is smaller than the earlier level but it still within the normal level."
"The question that you are asking really is that what is the monsoon going to be like in July; the answer to that is: I hope that it is better than you think it is. We don't know what (it) is going to be like. We just have to wait and see," he said.
"Monsoon is a very complex system and the fact that it (is) delayed by two weeks . . . does not mean that it is not going to recover," he said.
About the impact of bad monsoon on agricultural growth, he said, "Really if you will have a bad monsoon, it will affect agriculture. Some of that effect can be countered because there is a lot of irrigation . . . of course that costs money . . . the country can withstand drought even if agriculture production goes down a little bit during the Kharif (season) . . . it can be made up in Rabi."
