The Hindu Editorial Analysis- Off-Budget borrowings, a State-wise look

The Hindu Editorial Analysis: The editorial analysis of The Hindu Newspaper Editorial Articles aimed at simplifying various concepts relevant to the UPSC and other State PSC Exams. The Editorial Analysis helps in expanding the knowledge base as well as framing better quality mains answers. Today’s Hindu Editorial Analysis looks into the off-budget borrowings of the states in India.

Off-Budget Borrowings in News

While tabling the Budget a week ago, Telangana Finance Minister T. Harish Rao accused the Centre of “creating hurdles after hurdles” in the development of the State.

• He said that the State had resorted to off-Budget borrowings to complete irrigation projects in the shortest time but the Centre had imposed borrowing limits.
• This cut in borrowing limit was considered against the “spirit of federalism” in Indian Constitution.

What is Off-Budget Borrowing?

Off-Budget borrowings are loans obtained by government entities, such as PSUs or special purpose vehicles, on behalf of the government to finance its expenditure.

• According to the Comptroller and Auditor General of India, these borrowings are not included while computing the debt and the fiscal deficit of the State governments.
• However, the State government is responsible for repaying the loan and servicing the debt from its Budget.
• As extra-Budgetary borrowings find no mention in the Budget documents, one has to rely on the CAG reports to ascertain the figures.

Status of Off-Budget Borrowings by States

Five Southern States — Telangana, Andhra Pradesh, Kerala, Tamil Nadu and Karnataka — accounted for ₹2.34 lakh crore, around 93%, of the total off-Budget liabilities of eleven major States analysed.

• As of March 2021, Telangana had the highest burden of such loans followed by Andhra Pradesh.
• Andhra Pradesh had an off-Budget borrowing of ₹86,260 crore. The State’s Civil Supplies Corporation accounted for 35% of the borrowing, while the Andhra Pradesh Power Finance Corporation’s share was 18%.
• Further, the guarantees given by the States to PSUs and SPVs to raise loans or borrowings from banks have also been witnessing a rising trend.
• According to the data from an RBI paper that evaluates State finances, the guarantees issued by States as a share of GSDP have been on a rising trend in all the States shown except West Bengal.

Impact of Off-budget borrowings

The CAG’s contention is that resorting to extra-budgetary resources will lead them to a debt trap. In almost all States, if the off-Budget loans were added to their declared debt, it can take their debt-to-GSDP ratio even further away from State targets.

• Barring Karnataka, the debt-to-GSDP ratio exceeded the target in all States already.
• If off-Budget loans were also factored in, it raised a States’ debt-to-GSDP ratio further.
• For instance, in Andhra Pradesh, outstanding liabilities were 35.3% of the GSDP, which was slightly higher than State’s target of 35%. But if the off-Budget borrowings were included, the State’s debt-to-GSDP ratio shot up to 44%.
• Karnataka already accounts off-Budget borrowing in its debt calculation, unlike the others.

Off-budget Borrowings FAQs

1. What is Off-budget borrowings?

Ans. Off-Budget borrowings are loans obtained by government entities, such as PSUs or special purpose vehicles, on behalf of the government to finance its expenditure.

2. What is the impact of Off-budget borrowings on state finances?

Ans. The CAG’s contention is that resorting to extra-budgetary resources will lead them to a debt trap. In almost all States, if the off-Budget loans were added to their declared debt, it can take their debt-to-GSDP ratio even further away from State targets.

3. Which state has recently included its off-budget borrowings in in its debt calculation?

Ans. Karnataka accounts its off-Budget borrowing in its debt calculation, unlike the others.

Union Budget 2023-24, Key Provisions

Union Budget 2023-24, Key Provisions

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