Pandemic-related spending, farm loan waivers and slowing growth are among the reasons which have increased states’ debt over the last few years, according to a parliamentary response.
“As per the Reserve Bank of India’s (RBI) report… States’ outstanding debt has shown a gradual upward movement inter alia due to implementation of Ujjwal DISCOM Assurance Yojana (UDAY), farm loan waivers, pandemic-related revenue losses, additional expenditures and growth slowdown,” Pankaj Chaudhary, the minister of state in the ministry of finance, said.
“However, the RBI has informed that States have been regularly servicing the State Government Securities,” he added.
States’ finances have been under the spotlight amid an ongoing debate on freebies. States in India are allowed to borrow from the bond market but there is a cap on how much they can borrow, linked to their gross domestic product.
States have also enacted their Fiscal Responsibility and Budget Management Act, the compliance to which is monitored by their state legislatures. For the next financial year, the Centre has fixed states a fiscal deficit of 3.5 percent of gross state domestic product, of which 0.5 percent will be tied to power sector reforms. The Centre has also pushed states to bring on their balance sheets borrowings by state public sector companies, special purpose vehicles where principal and/or interest are to be serviced out of the state budgets.
In his parliamentary response, the minister also shared data on the states’ outstanding debt. Let’s find out which ones have the largest debt burden.
Do remember, more debt is not necessarily a bad thing, as long as it is being used productively and remains within check as a proportion of economic activities.
| Total outstanding liabilities of state governments at end of March 2022 (in Rs lakh crore) | |
| Tamil Nadu | 6.57 |
| Uttar Pradesh | 6.44 |
| Maharashtra | 5.97 |
| West Bengal | 5.51 |
| Karnataka | 4.73 |
| Source: Ministry of Finance |
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