Off-budget borrowing: is it behind us now?
₹2.79 trillion and in 2021-22 at ₹1.71 trillion. One study estimated that Telangana’s off-budget borrowing in 2021-22 was 30% of its total borrowings that year. For Kerala it was 22%, Chhattisgarh 17% and Andhra Pradesh 12%.
The 15th Finance Commission and the Comptroller and Auditor General of India (CAG) repeatedly flagged these borrowings saying they subverted fiscal transparency and threatened fiscal sustainability. It doesn’t anymore. In 2018-19, it was as high as ₹1.62 trillion.
In the Union Budget for 2020-21, finance minister Nirmala Sitharaman came out with a statement on extra budgetary resources and made a commitment that the Centre will clean its balance sheet and end off-budget borrowings which dropped to ₹752 crore in 2021-22 and to zero in 2022-23. The Centre in March 2022 announced that states’ off-budget borrowings will be included in determining their regular borrowing ceiling. So, off-budget borrowings as of 2021-22 will now be adjusted against states’ net borrowing ceilings between 2022-23 and 2025-26.
This severely crimped the ability of states to borrow, triggering cash flow problems in Andhra Pradesh and Kerala. Many states protested, a few threatened legal action, but they have eventually accepted the Centre’s order. Only to the extent of off-budget borrowings.
States’ off-budget borrowings will reduce to ₹18,499 crore in 2022-23. However, India’s finances can become truly sustainable only when the Centre and states reduce their deficits in line with the FRBM Act. The Act seeks to eliminate revenue deficit and stipulates the fiscal deficit at 3% of GDP.
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