Context:
Recently, The Comptroller and Auditor General of India (CAG) has released a report highlighting the alarming rise in public debt of India's 28 states.
Key Findings:
- According to the Comptroller and Auditor General (CAG), the public debt of 28 Indian states rose from ₹17,57,642 crore in FY 2013‑14 to ₹59,60,428 crore in FY 2022‑23. That’s nearly 3.4 times increase in 10 years.
- As a share of Gross State Domestic Product (GSDP), states’ debt increased from 16.66% in 2013‑14 to 22.96% in 2022‑23.
- The states together account for about 22.17% of India’s GDP in debt liability.
Variation among States:
Some states are far more indebted relative to their economies:
Punjab has the highest debt‑to‑GSDP ratio at 40.35%, followed by Nagaland (37.15%) and West Bengal (33.70%).
At the other end, Odisha (8.45%), Maharashtra (14.64%), and Gujarat (16.37%) have relatively low debt‑to‑GSDP ratios.
In FY 2022‑23:
8 states had debt >30% of GSDP
6 states <20%
Remaining 14 states had debt in 20‑30% range.
Concerns & Worrying Trends:
· Debt vs Revenue Receipts: The debt of states is on average about 150% of their revenue receipts / non‑debt receipts over the decade.
· Borrowing for Current Expenditure: In 11 states, a significant portion of borrowings is being used to fund day‑to‑day expenses (salaries, subsidies, etc.), rather than capital investment.
o For example, states like Andhra Pradesh, Punjab, West Bengal, Kerala, Bihar etc. are among those where net debt receipts exceeded capital expenditure in FY 2022‑23.
· “Golden Rule of Borrowing” Overlooked: The “golden rule” suggests debt should ideally be used for investment (capital), not running costs. The CAG report says many states are violating this.
· Pandemic Impact: FY 2020‑21 (COVID year) saw a jump in debt‑to‑GSDP ratio partly due to drop in GSDP growth and increased borrowings (including from the Centre) for GST compensation shortfall and capital expenditure assistance.
Implications:
· High debt burdens reduce states’ ability to spend on development, infrastructure, health, education, etc.
· More of the state’s revenues will go into paying interest and principal rather than growth‑oriented investment.
· With more of borrowing or liabilities directed for current obligations, there’s less room for capital expenditure, which aids long‑term growth.
· States with low debt‑to‑GSDP ratios have more flexibility; highly indebted states will be under strain, especially those with weak revenue bases.
Way Forward:
1. Fiscal Consolidation Path: States should adopt time‑bound plans to reduce debt‑to‑GSDP and debt‑to‑revenue ratios.
2. Prioritise Capital Expenditure: Ensuring borrowed funds are used more for infrastructure, public goods, less for subsidies or non‑productive spending.
3. Strengthen Revenue Mobilisation: Expand tax bases, improve collection, limit uncontrolled non‑plan expenditures.
4. Transparency & Uniform Reporting: Clear disclosures of off‑budget borrowings, guarantees, etc.
5. State‑Centre Cooperation: Centre should assist states via fiscal transfers, grants, and guidelines, especially post pandemic.
Conclusion:
The CAG report's findings are a cause for concern, highlighting the need for states to reassess their borrowing practices and prioritize fiscal discipline. By doing so, states can ensure sustainable economic growth and development.
