The TFC, therefore, recommended that the Central Government should not act as an intermediary for future lending and allow the States to approach the market directly.
If some fiscally weak States were unable to raise funds from the market, the Centre could borrow for the purpose of on-lending to such States, but the interest rates should remain aligned to the marginal cost of borrowing for the Centre. This approach was accepted by the Central Government, in principle, to be implemented in phases, in consultation with the Reserve Bank.