States' Off-Budget Borrowings Undermine India's Fiscal Consolidation

In the current fiscal year of 2025-26, Indian states have continued to rely heavily on off-budget borrowings to fund their welfare schemes and infrastructure projects, raising concerns over transparency and fiscal discipline.

According to data from the finance ministry, the trend of increasing state-level borrowings has been ongoing for the past five years. Maharashtra and Tamil Nadu have emerged as the frontrunners, each breaching the ₹1.2 lakh crore mark in FY25, underscoring the significant scale of investment and spending priorities at the state level. Other major states, such as Karnataka and Uttar Pradesh, have also recorded substantial increases in their borrowing profiles.

In contrast, smaller states, including those in the northeast region, have maintained more modest borrowing levels. This divergence highlights the varying fiscal capacities and priorities across different parts of the country.

While the off-budget borrowings offer states short-term flexibility, the high debt levels raise concerns over transparency and the overall fiscal discipline. Reining in these off-budget liabilities will be crucial to ensure that India's broader consolidation roadmap, aimed at strengthening the country's fiscal health, remains credible and sustainable in the long run.