Governance & Fiscal Insights

Tag: state finances

  • What if a state’s real liabilities are larger than what its budget appears to show?

    That is the central concern with off-budget borrowings.

    A WorldBank study for the 16th FinanceCommission notes that these are borrowings raised by PSUs, SPVs, or other government-controlled entities, where repayment is ultimately supported by the government through grants, guarantees, or escrow of future revenues. So the borrowing may sit outside the budget, but the fiscal risk does not.

    The root cause is fairly clear: persistent subsidy pressures, loss-making public utilities, and infrastructure financing needs. Off-budget routes allow expenditure without fully reflecting the burden in the budget, which weakens fiscal transparency and creates hidden debt.

    Why is this worrying? Because reported figures themselves are often incomplete.

    The study found major gaps between what some states reported and what emerged from CAG-based reporting. For FY2021–22, TamilNadu reported ₹594 crore of OBBs, while the CAG-linked figure cited in the study was ₹12,357 crore. WestBengal reported ₹1,089 crore, against ₹4,311 crore in the CAG-linked figure used in the study. It also clearly states that there is no independent institutional mechanism to validate reported OBBs, and many cases may be underreported or missed altogether.

    That is what makes hidden liabilities especially dangerous: they weaken the credibility of deficit and debt numbers, complicate compliance with FRBM limits and eventually return as explicit fiscal pressure.

    One reform path already exists– The study highlights Karnataka’s approach of broadening the definition of liabilities under its fiscal responsibility legislation to include PSU/SPV borrowings. That is the right principle: if public resources will ultimately service the liability, it should not remain outside the state’s fiscal lens.

    The wider recommendations are equally important: a uniform reporting framework, separate disclosure of guarantees, grants and loans, annual reporting of escrowed revenues/revenue forgone, better lender-wise disclosures, and modernization of the accounting framework.

    Off-budget borrowing is not just an accounting issue. It is a fiscal governance issue.

    When liabilities are moved outside the budget, accountability also moves with them. And that is precisely why transparent reporting matters.