Whereas the Centre says it imposed the borrowing limits to curb fiscal indiscipline, states argue that this might prohibit their professional borrowing area and damage their monetary plans. The borrowing ceiling for states is 3% of the gross state home product (GSDP). A further borrowing of 0.5% of the GSDP is allowed if the states undertake sure reforms.
Nevertheless, states say the Centre has put many extra circumstances this 12 months, curbing their borrowing headroom. These embody counting loans backed by state ensures in the direction of the borrowing restrict.
“The Centre is treating loans outdoors the state exchequer as public money owed and deducting these from the borrowing restrict,” Kerala finance minister KN Balagopal advised ET. “Due to these restrictions, Kerala will be capable of borrow a lot lower than the requirement and what's pretty because of the state this 12 months,” he mentioned. “We've got flagged this to the union finance minister,” Balagopal added.
Kerala's borrowing restrict for the primary 9 months of 2025-26 is ready at ₹29,529 crore. Final fiscal 12 months, the Centre deducted ₹1,877.57 crore from the state's borrowing ceiling. This was made as an adjustment for extra borrowing that was permitted throughout 2023-24.Union finance ministry officers, in the meantime, blame the state's incapacity to stay to fiscal pointers on off-budget borrowing issued by the Centre occasionally for the imposition of the extra circumstances.As part of its fiscal reforms, the finance ministry launched a brand new rule to curb off-budget borrowings within the fiscal 12 months 2021-22, the place it mentioned borrowings by state-owned entities, the place principal and/or curiosity is serviced by way of state budgets and/or project of taxes/cess or another state income, are factored in for the aim of issuance of borrowing consent to state governments.
This 12 months, this situation was prolonged to ensures given by state governments to public sector enterprises or entities they management. Additionally from this 12 months, unpaid energy payments and shortfalls within the assure redemption fund have been additionally added.
“The principles are the identical for all states and pointers have been despatched to them effectively prematurely,” a senior central authorities official mentioned.
In response to the info by the finance ministry, Kerala's off-budget borrowing in 2024-25 was ₹983 crore, which will probably be taken under consideration for this 12 months's borrowing ceiling.
Other than that, the Centre additionally deducted ₹3,323 crore from Kerala's borrowing restrict for the primary three quarters of 2025-26 resulting from a brand new situation on its non-contribution in the direction of the assure redemption fund. The fund was established to fulfill potential future liabilities from ensures issued by the central or state governments.
Kerala isn't alone to face this.
The Centre decreased the borrowing restrict of Punjab by ₹16,676 crore towards the state authorities's requested restrict of ₹47,076.40 crore. For the primary 9 months, the Centre authorised borrowing of ₹21,905 crore towards the request for ₹35,307 crore. “The restrict was lower on account of pending dues to discoms, unpaid energy subsidy and arrears, which totalled above ₹15,000 crore,” the central authorities official mentioned.
States can avail themselves of an extra 0.5% restrict in the event that they undertake extra reforms, the official mentioned. For the Telangana authorities, the borrowings was decreased to ₹54,009 crore, towards the state's price range estimate of ₹64,539 crore for 2025-26. “We've got prolonged a request to the Centre to permit extra borrowing,” an official from Telangana mentioned, including that the state has already borrowed ₹46,000 crore as of September 30 this fiscal 12 months.
The Centre has been extending all assist to scale back the debt burden of Telangana, central authorities officers mentioned. It's contemplating a proposal to restructure states' debt as effectively.
Maharashtra has the best off the price range borrowing of ₹13,990 crore, and the state authorities already issued a directive final month that overseas support have to be accepted solely with the Centre's approval, as this might be a part of the borrowing ceiling of the state.
Karnataka has off-budget borrowings of ₹5,438 crore.
