New Delhi, Aug 20 The Union Cabinet today approved the relaxation of the Debt Consolidation and Relief Facility (DCRF) guidelines, to enable the States to borrow upto four percent of their respective Gross State Domestic Product (GSDP) during 2009-10.

The States will not lose the benefits of DCRF, provided they are in compliance with this modified fiscal deficit target.

The States will have to suitably amend their respective fiscal responsibility legislation if so required.

The Ministry of Finance would write to the 13th Finance Commission to make appropriate adjustments.

The Ministry of Finance has been fixing the annual borrowing ceilings for States largely in accordance with the fiscal deficit targets recommended by the Twelfth Finance Commission and accepted by the Government.

The target of three per cent for 2008-09 had been relaxed to 3.5 per cent, in response to the current economic slowdown.

Subsequently, it was decided to extend the relaxation in the fiscal deficit target of the States to 2009-10 in order to spur the development of infrastructure and employment generation through larger public investment.

In his budget speech of July 6, the Finance Minister stated that against the backdrop of limited fiscal space because of reduction of CENVAT and Service Tax rates, the Government had substantially hiked the Gross Budgetary Support for the annual Plan 2009-10.

Bulk of this increased support is to be directed toward public investment infrastructure. he State Governments will be permitted to borrow an additional 0.5 per cent of their GSDP. This will go in a long way in reversing the impact of economic slowdown and accelerate the growth revival in the medium term.

This dispensation will allow the States to borrow about Rs.21,000 crore additionally in 2009-10. (ANI)