States will not be able to avail themselves of NSSF loans at concessional interest rate of nine per cent if they deviate from the targets specified under their fiscal responsibility legislation.
A decision to this effect was taken at a meeting of the Union Cabinet here on Thursday.
The Union Cabinet has approved the Finance Ministry proposal to withdraw the interest rate of nine per cent on National Small Savings Fund (NSSF) loans in case a State fails to comply with the FRBM target.
A State Government can revert to nine per cent interest rate as and when it again complies with the Fiscal Responsibility and Budget Management (FRBM) targets.
The 13th Finance Commission had recommended that interest rate of NSSF loans contracted by the States till 2006-07 and outstanding at the end of 2009-10 be reset at a common interest rate of nine per cent in place of existing 10.5 per cent or 9.5 per cent.