Off-budget borrowings

According to recent reports, Indian states are expected to keep their off-budget borrowings largely flat in fiscal year 2025-26. This trend marks a shift towards stricter fiscal discipline after a period of sharp increases, particularly during the pandemic. (Source: The Mint)

What are Off-Budget Borrowings?

Off-budget borrowings are loans taken by government-owned entities, such as public sector enterprises, on behalf of the government. While these borrowings do not appear directly on the government’s official balance sheet, the principal and interest payments are ultimately serviced from the government budget. This practice can lead to an understatement of the true fiscal deficit, raising concerns about transparency and fiscal discipline.

Key Trends and Context

• Past Increases: Off-budget borrowings by states had surged significantly in previous years, reaching ₹29,335 crore in FY25, up from ₹21,251 crore in FY24. At the height of the COVID-19 pandemic, these borrowings had peaked at ₹67,181 crore in FY21.
• Central Government’s Push for Discipline: The central government has taken steps to curb this practice by including such borrowings within states’ overall borrowing limits under Article 293(3) of the Constitution. This encourages states to manage their debt more transparently.
• Shift to SASCI Scheme: States are increasingly turning to the Centre’s Special Assistance to States for Capital Investment (SASCI) scheme. This program provides long-term, interest-free loans for infrastructure projects. The Centre has used this scheme as a policy lever to encourage states to undertake reforms and boost capital expenditure. For FY26, a significant amount has been allocated to this scheme, with the Centre having already disbursed over ₹36,000 crore to states and union territories as of August 2025. Uttar Pradesh, Bihar, and Rajasthan were among the top recipients of these funds.