Burgeoning Debt of the States, a Cause for Concern

Debt burden of various states of the union is worrisome and is a manifestation of the reckless expenditure and lack of fiscal prudence. The CAG (Comptroller & Auditor General) in its annual reports has regularly voiced concern about the rising debt burdens of the states and their lack of fiscal management.

Maharashtra, a state with the largest economy – which saw a game of musical chairs in government formation – is saddled with a debt burden of over rupees four lakh seventy one thousand crores ( 4,71,000 crores) which is a 62% increase from rupees two lakh ninety four thousand crores in 2014-15 and with the farm loan waiver promises being made by the current incumbents the debt could swell further. This does not augur well for a state which is supposed to provide a major thrust and contributor to the country’s economy.

However, the only saving grace for the state is that the debt to GSDP ( gross state domestic product) has improved and remained within the prescribed norms of 22.3% set by the 14th Finance Commission.

Haryana, another state which went to the polls recently has seen an increase of 115% in its debt over the last five years according to CAG. The state’s debt swelled from Rs. 76,263 crores to Rs. 1,64,076 crores with the per capita liability rising from 27,700 rupees to almost 63,000 rupees according to CAG.

Himachal Pradesh, a small state as compared to others has an astounding debt which has crossed half a lakh crores. According to the CAG report tabled in the house by the Chief Minister in the ongoing winter session, the state’s debt stood at Rs. 51,030 crores in the last financial year which is an increase of 8% from last year. The fiscal liability of the state stands at an alarming 37.55% of the SGDP (state gross domestic product) which is well above the 22.3% prescribed by the 14th Finance Commission.

The previous Congress government had the dubious distinction of doubling the state’s debt from Rs. 22000 crores to almost Rs. 45000 crores when it relinquished office in 2017. The state’s financial health looks grim as it has to return loans of approximately Rs. 21,000 crores in addition to interest liabilities of approximately Rs. 9,500 crores till 2028-29, as per CAG’s report tabled by the CM in the assembly.

Another state which is in a debt trap is Punjab which saw its debt more than double from Rs. 92,282 crores in 2012-13 to Rs. 1.96 crores in 2017-18. According to CAG, this state’s debt currently stands at a whopping Rs. 2.11 lakh crores and the outgo on principal and interest was estimated to be an astronomical Rs. 24,870 crores, including interest alone of Rs. 16,260 crores, which is substantially higher than the net borrowing of Rs. 15,545 crores approved by the centre in the fiscal 2018-19.

All these states mentioned above and many others are borrowing money to service the old debts with no or very little funds left for capital investment which is a classic example of a debt trap. The financial health of the states has a direct bearing on the financial health of the nation and is a cause of concern.

The financial watchdog (CAG) is doing a commendable job in raising the red flag and laying down guidelines for exercising financial prudence but it is upto the various state governments to tighten their belts and curb non plan expenditure and spending on freebies for their legislators at the cost of the common man. They should instead channelise the energy of the administrative machinery and the executive in generating new sources of income and employment to improve the financial health of their respective states which will go a long way in improving the fiscal health of the nation.

(Featured image source)


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About the Author

Aman Gupta
Political Editor, Samast Bharat magazine