Why FM allowed Five States to raise financial resources through Open Market Borrowings?

Union Finance Ministry Smt. Nirmala Sitharaman has granted permission to raise additional financial resources of Rs. 9,913 crore to five states through Open Market Borrowings (OMBs). The five states Andhra Pradesh, Telangana, Karnataka,  Goa, and Tripura.

Key Facts

  • This permission allows Karnataka to raise Rs. 4,509 crore.
  • Andhra Pradesh can borrow Rs. 2,525 crore.
  • Telangana got permission to borrow Rs. 2,508 crore
  • Goa can raise Rs. 223 crore and
  • Tripura can raise Rs. 148 crore.

Why these States have been granted permission?

  • The permission has been granted because these States have successfully implemented the One Nation One Ration Card System.
  • Further, In light of the unprecedented pandemic the Central Government had also allowed additional borrowing limit of up to 2% of Gross State Domestic Product  (GDP) to the States for the current financial year.

Open Market Borrowing or Open Market Operation

The buying and selling of government securities in the open market is termed as open market operations.  It is done by the Reserve Bank of India (RBI) only. When RBI wants to infuse liquidity or money into the monetary system, it purchases government securities in the open market. Thus, providing liquidity to the  commercial banks. On other hand it sells securities to curbs liquidity. Thus, RBI indirectly controls the money supply and influences short-term interest rates. There are two kinds of OMOs:

  1. Outright Purchase (PEMO) – It is permanent. The purchase involves the outright selling or buying of government securities.
  2. Repurchase Agreement (REPO) – It is short-term and subjected to repurchase.

One Nation One Ration Card

It is an ambitious plan of Department of Food & Public Distribution on order to ensure the delivery of food security entitlements to beneficiaries covered under the National Food Security Act (NFSA), 2013. It provides food security entitlements irrespective of their physical location anywhere in the country.