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Crisil in its latest report has said that states have done off-balance-sheet borrowings through various entities in FY22, resulting in a 1 percentage point increase in such hidden loans to 4.5 per cent of Gross State Domestic Product (GSDP). The report by Crisil, based on an analysis of 11 states accounting for three-quarters of GSDP, warned that this will impact the badly-needed capital expansion measures by the states as resources will be ploughed to service debt.

The Indian economy has revived to touch the pre-Covid levels after one year of a decline in the GDP due to the impact of the Covid-19 pandemic. Policymakers are betting on capital expansion to accelerate the revival through various measures. The Centre has been trying to decrease its hidden borrowings and show a truer picture of the finances for the last few years.

It stated ‘These borrowings have been raised by entities owned by states, which also guarantee the loans. Around 4-5 per cent of the revenue of states will go towards servicing such guarantee obligations this fiscal, partially reducing the ability of state governments to fund capital expenditure.’ It attributed this behaviour by the states to constrained revenue growth due to the pandemic-induced slowdown, and increasing revenue expenditure. It added these two reasons have led to their fiscal deficits rising to close to 4 per cent of GSDP, well above the historical level of 2-3 per cent seen earlier in the last decade.