Eleven states utilized borrowings for daily costs, and the CAG study reveals that the states’ public debt tripled to Rs 59.6 lakh crore in ten years, reaching 23% of GSDP.
According to a first-of-its-kind decadal audit by the Comptroller and Auditor General of India (CAG), the states of India are sitting on a mountain of debt that has quadrupled in only ten years.
The total public debt of all 28 states increased from Rs 17.57 lakh crore in 2013–14 to Rs 59.60 lakh crore in 2022–23, according to The Indian Express. This indicates that debt increased by more than 3.3 times over the course of a decade, consuming a larger portion of states’ economic output.
Debt as a percentage of GDP increased from 16.66 percent in 2013–14 to almost 23 percent in 2022–23. CAG K Sanjay Murthy announced the results at the State Finance Secretaries Conference on Friday.
Where there is the greatest hardship
Not every state has the same amount of debt. The debt-to-GDP ratio at the end of FY23 was 40.35 percent in Punjab, 37.15 percent in Nagaland, and 33.70 percent in West Bengal.
On the opposite end of the spectrum, Gujarat (16.37 percent) and Maharashtra (14.64%) also managed to keep their debt ratios reasonably low, while Odisha maintained it at only 8.45 percent.
According to The Indian Express, eight states had public debt that was more than 30% of GSDP, six states had debt that was lower than 20%, and the other states had debt that was between 20% and 30%.
In FY23, the cumulative debt of the states amounted to Rs 268.9 lakh crore, or 22.17 percent of India’s GDP.
The significance of the numerals
Public debt illustrates how governments finance their expenditures and goes beyond headline numbers. The research states that during the last ten years, the state’s debt as a percentage of revenue has ranged between 128 and 191 percent. On average, states’ debt was equal to 150% of their yearly income.
Despite governments taking on additional debt, the Covid-19 epidemic had a significant impact on economic activity, which caused debt to spike to 25 percent of GSDP in FY21 from 21 percent the year before.
The Union government provided a large portion of the increased borrowing between 2020–21 and 2022–23 in the form of consecutive GST compensation loans and special capital expenditure support packages.
Taking out a loan for daily expenses
The audit also pointed out a violation of the so-called “golden rule” of borrowing, which states that governments should only take on debt to finance investments rather than ongoing expenses.
Eleven states—Andhra Pradesh, Punjab, West Bengal, Kerala, Bihar, and Tamil Nadu—used a portion of their borrowings in FY23 to cover revenue shortfalls rather than capital projects.
Capital expenditures in Andhra Pradesh and Punjab were as low as 17% and 26% of net borrowings, respectively. In Himachal Pradesh and Haryana, capital projects accounted for just around half of the debt.
States may borrow money in a variety of ways, including via bank loans, RBI Ways and Means Advances, LIC and NABARD assistance, and market instruments like bonds and Treasury bills. These together make up the public debt that CAG has documented.