81. This question is covered by item I of our terms of reference.

The present position is that the provinces have the freedom to borrow in the open market in India except when they are indebted to the Centre. The most outstanding advantage of the freedom of borrowing is the sense of financial responsibility it creates; for, there is no more accurate, sensitive and dependable meter of the credit of a borrowing Government than the reaction of the securities market, we do not therefore wish to withdraw this freedom. Nevertheless, it is necessary to have some machinery which would ensure that borrowing Governments do not, by their competition, upset the capital market. This machinery is now provided through the Reserve Bank which advises all the Governments, but in view of the ambitious programmes of development both by the Centre and by the units, it may become necessary to set up some kind of expert machinery, both competent and definitely empowered, to fix the order of priority of the borrowings of the different Governments. In some countries, this co-ordination is effected either by a Ministerial Conference or by a Loans Council. Such machinery should not affect the responsibility of a Government for its borrowing policy and should help only in the timing of the loan and avoidance of unnecessary competition, The co-ordination by the Reserve Bank has worked well in practice, and so long as it works well we do not recommend any change. We assume that there will be no distinction between federating States and the provinces in this respect.