Even though the Centre discontinued off-budget borrowings since 2022-23 to bring transparency to budget-making, some state governments aren’t following the path. States raised Rs 29,336 crore in FY25 via off-budget means, indicating their continued reliance on off-balance sheet liabilities to fund programmes, minister of state for finance Pankaj Chaudhary told Rajya Sabha on Tuesday.
The minister did not name the states that raised off-budget loans in the last fiscal.
Off-budget borrowings dip
After the Centre’s clampdown on states for resorting to fiscal indiscipline from FY22, states’ off-budget borrowings fell 47% on year to Rs 35,773 crore in FY23. The off-budget borrowing declared by the states through their companies, special purpose vehicles (SPVs) and other equivalent instruments, was estimated at Rs 67,181 crore in FY22.
Such borrowings further fell 41% on year to Rs 21,251 crore in FY24, before rising again to Rs 29,336 crore in FY25, Chaudhary said.
Before curbing the states’ off-budget borrowings, the Centre drastically cut back such loans from Rs 1.21 lakh crore in FY21 to just Rs 752 crore in FY22, before completely stopping such liabilities. In the meantime, the Centre repaid from the budget most of the outstanding off-budget liabilities between FY22-FY23.
Since FY23, the Centre has made it clear that states can’t borrow beyond the annual limits set by the central government under Article 293(3) of the Constitution. Many of them used to circumvent this by giving guarantees or raising loans and advances, and bonds through their entities. Such loans have now been made part of the states’ net borrowing ceiling (NBC) if the loans are being serviced from the budget.
Centre mulls stricter measures
A petition has been filed against the borrowing limit imposed by Centre for states by the Kerala government in the Supreme Court, and the matter is still pending with the apex court.
Instead of only imposing fiscal discipline on states through the mandatory borrowing consent under Article 293(3) of the Constitution, the Centre is also looking at options like the rating of state development loans (SDLs) by credit rating agencies to signal the borrowing cost could be higher for imprudent states compared with fiscally prudent ones
The Centre is striving to bring down general government debt as post-pandemic global debt vulnerability of emerging countries has worsened. In 2017, the NK Singh Committee recommended a ceiling for general government debt of 60%–40% for the Centre and 20% for states. The general government debt level in India is currently over 80% with the Centre’s share about 57%.
The Comptroller and Auditor General of India (CAG) has also flagged that many states are facing fiscal sustainability risks and financial indiscipline due to off-budget borrowings and misclassification of revenue expenditure as capital expenditure. Punjab, with a debt-to-GSDP ratio of over 45%, is the most indebted state in the country.