8 states to get nod for borrowing plans only after full disclosures

The Centre has directed eight states to provide additional disclosures of their off-budget liabilities for approval of their borrowing plans. Officials said the move is aimed at enhancing transparency in states' balance sheets and reducing the large off-budget liabilities, which have often been flagged by economists and states.

The eight states are Uttar Pradesh, Uttarakhand, Chhattisgarh, Assam, Madhya Pradesh, Himachal Pradesh, Nagaland and Sikkim.

"Eight states' borrowing plans are yet to be approved as they are required to give full disclosure as per the new guidelines," an official told ET, adding that some states are reluctant to provide them.


According to the official, the states which have given full disclosure participated in the May 31 state development loan (SDL) auction. They are Maharashtra, Kerala, Andhra Pradesh, Goa, West Bengal, Gujarat, Haryana, Manipur, Meghalaya, Rajasthan and Tamil Nadu.

An email query sent to the finance ministry remained unanswered till as of press time.

On March 31, the Centre had written to the states saying that off-budget liabilities of FY21 and FY22 will be adjusted against the net base borrowing ceiling (NBC) for FY23.

"Borrowings by state public sector companies/corporations, special purpose vehicles and other equivalent instruments, where principal and /or interest are to be serviced out of the state budgets and/or by assignment of taxes/cess or any other state revenue, shall be considered as borrowings made by the state itself for the purpose of issuing the consent under Article 293(3) of the Constitution of India," the communication said.

States, typically, use the off-budget route to raise debt indirectly through entities owned by the government to fund some expenditure.

The Centre, however, relaxed the move after the states said it would hit their borrowing plans, but they still need to disclose the off-budget borrowings before their borrowing plans are approved.

Many states, including Telangana, said that because of lack of approval, it could not participate in the SDL auction held on May 31.

Following this, the Centre relaxed the norm, adding that off-budget liabilities will be counted only from FY22 and gave "ad hoc nod" to Telangana to borrow ₹4,000 crore from the market. However, its annual borrowing plan is yet to be approved.

Experts said that equating off-budget borrowings with states' own debt is "a watershed decision for state finances", as hard data on such loans is difficult to excavate.

"Undoubtedly, this is a welcome move as it will bring in much-needed fiscal transparency in an area that has been cloaked in opacity," Aditi Nayar, chief economist at ICRA, said.