Govt’s active debt management to lower borrowing costs for Centre, states: FM

Union finance minister Nirmala Sitharaman

Borrowing costs for both the Central and state governments are expected to come down due to active debt management measures, including the repayment of high-cost debts, Union Finance Minister Nirmala Sitharaman said on March 11. The Central government has sought an additional Rs 6.79 lakh crore under the second supplementary demand for grants, of which Rs 5.5 lakh crore will be used to repay debts.

Speaking in the Lok Sabha on March 11 during the ongoing Parliament session, Sitharaman said, “The second supplementary demand of grants has sought an additional Rs 6.79 lakh crore. Rs 5.5 lakh crore sought via supplementary will go for repayment of debts. Active debt management is aimed at reducing the cost of borrowing both for the Centre and states. Essentially, the government is removing high-cost debts, and payment for high-cost loans has already happened. Thus, borrowing rates for the Central government have come down. For states also, when they go to market to raise funds, the rates will be lower.”

The government’s debt repayment strategy is expected to ease the pressure on state governments, which have faced rising borrowing costs due to increased debt issuance. The increased repayment will help reduce the overall debt servicing burden, contributing to a more stable borrowing environment for both the Centre and states.

The government has also sought Rs 7,000 crore in the supplementary grants for the Unified Pension Scheme (UPS), which will begin from April 1, 2025-26. "We have arranged Rs 7,000 crore for the Unified Pension Scheme as it begins from April 1, 2025-26,” Sitharaman said during her Lok Sabha address.

Support for J&K and Manipur

Sitharaman also highlighted the government's efforts to restore the public finances of Jammu & Kashmir. "We have fiscally restored the public finance of Jammu & Kashmir. The fiscal deficit of J&K has been brought down from over 12 percent of Gross State Domestic Product (GSDP) to 3 percent in the last four years,” she said.

The finance minister added that the government would continue to support Jammu & Kashmir to enable the Union territory to focus on developmental priorities. "We will continuously support J&K so that the government can prioritise developmental activities. Like J&K, the government is also supporting Manipur for faster recovery of their economy," Sitharaman said.