Off-budget state borrowing: India must treat the illness rather than the symptom
Mint - Opinion · Published 11 November 2026 · Last updated
India's off-budget state borrowing highlights the need to reform the rigid FRBM framework rather than merely policing liabilities.
Key points
- The 16th Finance Commission wants off-budget borrowing discontinued and all such liabilities brought onto state budgets with enhanced disclosure and audit.
- The Comptroller and Auditor General of India (CAG) is holding a national consultation on reporting off-budget borrowings.
- Combined Centre-state debt is projected by the Commission to fall from 77.3% of gross domestic product in 2026-27 to 73.1% by 2030-31.
- World Bank estimates put outstanding off-budget borrowing in 2023-24 at ₹1.40 trillion in Andhra Pradesh (11% of GSDP) and ₹1.21 trillion in Telangana (9%).
- Kerala’s stock of off-budget borrowing was about 3% of GSDP in 2023-24, though its fresh borrowing that year was the highest among covered states.
- Guarantees across 27 states stood at 3.9% of GSDP in 2022-23, with 44% of it concentrated in the power sector.
- Punjab’s reported off-budget stock fell from ₹10,551 crore to ₹770 crore in a year due to reclassification.
- Tamil Nadu’s reported stock fell from ₹27,670 crore to ₹2,299 crore in a single year, reflecting reclassification rather than repayment.
Background
- The Fiscal Responsibility and Budget Management (FRBM) Act of 2003 required the Union to cut its fiscal deficit to 3% of GDP and eliminate the revenue deficit.
- Over 24 budgets since enactment, the Union met neither target, exceeding a 3% deficit in 23 years while the revenue deficit never vanished.
- The FRBM Act was amended thrice, and the Union transitioned to a debt anchor of 50% of GDP by 2030-31 starting from 2026-27.
- States have remained strictly bound by a uniform 3% fiscal deficit ceiling enforced through Article 293(3) of the Constitution.
- The uniform 3% rule originated from a French budget official, Guy Abeille, in 1981 and entered the Maastricht Treaty before India adopted it in 2003.
Prelims facts and Mains angle for this issue are in the full SWAदेSH note.
Original report: Mint - Opinion