States are using a roundabout way to borrow. And that's raising concerns
Indian states are increasingly using special purpose vehicles and state corporations to borrow funds, sidestepping the 3% GSDP borrowing cap set by Article 293 of the Constitution. This off‑balance‑sheet financing raises concerns about hidden debt liabilities for state governments and taxpayers.
- ✓Indian states are increasingly using special purpose vehicles and state corporations to borrow funds, sidestepping the 3% GSDP borrowing cap set by Article 293 of the Constitution.
- ✓Article 293 limits a state's net borrowing to 3% of its Gross State Domestic Product (GSDP).
- ✓This off‑balance‑sheet financing raises concerns about hidden debt liabilities for state governments and taxpayers.
Several state administrations have turned to special purpose vehicles (SPVs) and state‑owned corporations to raise capital, effectively bypassing the constitutional borrowing ceiling and prompting scrutiny from fiscal watchdogs.
Article 293 limits a state's net borrowing to 3% of its Gross State Domestic Product (GSDP). By channeling loans through SPVs, the debt can be kept off the official balance sheet, yet the state remains ultimately responsible for servicing interest and repaying principal.
Experts warn that this approach creates an illusion of fiscal prudence while masking true indebtedness, potentially jeopardising credit ratings and limiting the central government's oversight of sub‑national finances. The hidden liabilities could translate into higher fiscal pressure on taxpayers if states are forced to honor the obligations later.
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| Issuing Authority | Livemint Indian Economy & Policy |
|---|---|
| Topic Category | GOVERNANCE |
| Jurisdiction | All India / National |
| Publication Date | 11 September 2026 |