Indian states are decreasing dependence on off-budget borrowings, as the Centre is tightening regulations by incorporating these loans into states’ fiscal boundaries

External Borrowings from the Budget

Off-budget borrowing, or supplementary budget financing, describes the approach the government uses to finance its expenditures without including the debt in its annual report.

These borrowings are not considered in the evaluation of the fiscal deficit, notwithstanding their fiscal impacts.

How are Off-Budget Borrowings acquired?

The government asks that executing agencies obtain required funds from the market through loans or by issuing bonds.

Public Sector Enterprises (PSEs) and Special Purpose Entities (SPEs) are often employed to create such financing.

These loans typically target financing subsidies, infrastructure, and social welfare initiatives.

Issue: Off-budget financing allows governments to evade the fiscal discipline mandated by the Fiscal Responsibility and Budget Management (FRBM) Act of 2003.

Trends in Financing Outside of the Budget

Borrowings outside the budget surged during the pandemic, hitting ₹67,181 crore in FY 2020-21, then dropping to ₹29,335 crore in FY 2024-25.

In the fiscal year 2024-25, the four states with the highest off-budget borrowings were:

Maharashtra: ₹13,990 crores

Karnataka: ₹5,438 crores

Telangana: ₹2,697 crores

Kerala: ₹983 crores

Actions by the Government

Centre’s Restrictions: Starting from FY 2021-22, any off-budget loans via SPVs are regarded as state debts and included in their overall borrowing cap.

Stopping at Central Level: The Union Government halted its own off-budget borrowings beginning FY 2022-23.

Special Assistance to States for Capital Investment (SASCI): Launched in FY 2020-21, it provides states with long-term, interest-free loans for infrastructure projects, encouraging a shift from ambiguous borrowing methods.