Syllabus:Â GS-II, Polity and Governance;
Subject: Polity and Governance, Economy;
Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment;
Issue: State borrowing provisions, NPS;
Context: States may be able to tap about ₹2.04 lakh crore as additional borrowings over and above their net borrowing limits for the year, the Finance Ministry indicated on Tuesday.
Synopsis:
- Extra borrowing: The Centre had allowed 22 States to raise additional borrowings of almost ₹61,000 crore this year on top of their net borrowing ceilings of 3% of Gross State Domestic Product (GSDP).
- Eligibility: The extra borrowing ceiling was granted to States who met their pension liabilities by making required contributions to the National Pension System (NPS), which oversees the retirement savings of government employees since 2004.
- Moreover, States are eligible to raise a little more than ₹1.43 lakh crore this year, based on the recommendations of the Ministry of Power.
- Performance based incentive: This is linked to the Fifteenth Finance Commission’s (FFC) suggestion to grant States an additional borrowing space of 0.5% of GSDP as a performance-based incentive for carrying out reforms in the power sector that improve operational and economic efficiency.
Background:
About National Pension Scheme:
- National Pension System (NPS) is a pension cum investment scheme launched by Government of India to provide old age security to Citizens of India.
- It brings an attractive long term saving avenue to effectively plan your retirement through safe and regulated market-based return.
- The Scheme is regulated by Pension Fund Regulatory and Development Authority (PFRDA).
- National Pension System Trust (NPST) established by PFRDA is the registered owner of all assets under NPS.
Key Features of the NPS:
- Contributions: Subscribers make regular contributions to their NPS account during their working years. These contributions accumulate and grow over time.
- Investment Options: The NPS offers two investment options: a) Auto Choice: where the funds are invested based on the subscriber’s age, and b) Active Choice: where the subscriber can select the asset classes (equity, corporate bonds, and government securities) and the fund manager.
- Portable Account: The NPS account is portable, allowing subscribers to maintain their account even if they change jobs or locations.
- Withdrawal Options: Upon retirement, subscribers have the flexibility to withdraw a portion of their accumulated corpus as a lump sum and use the remaining amount to purchase an annuity, which provides a regular pension income.
- Tax Benefits: NPS offers tax benefits at different stages. Contributions made by subscribers are eligible for tax deductions under Section 80C, while withdrawals are subject to certain tax exemptions.
- Regulated and Transparent: The NPS is regulated by the PFRDA, ensuring transparency and oversight of the scheme. It follows strict investment guidelines and has mechanisms in place to safeguard the interests of subscribers.
- Wide Coverage: The NPS is available to all Indian citizens, including salaried employees, self-employed individuals, and non-resident Indians (NRIs).
