States to ease off-budget borrowings

After a year of sharp increases, Indian states are expected to keep their off-budget borrowings largely flat in FY26, signaling a shift towards tighter fiscal discipline even amid persisting pressures for welfare spending, according to two people familiar with the matter.

- Rhik Kundu

The restraint comes after years of heavy reliance on off-budget borrowings, which had ballooned during the pandemic with both the Centre and states scrambling to finance emergency spendings. Off-budget borrowings by states rose to ₹29,335 crore in FY25 from ₹21,251 crore the year before, finance ministry data shows.

In FY21, at the height of covid-related spending, such borrowings had touched ₹67,181 crore.

"States have been told to enforce fiscal discipline. Even access to the Centre's 50-year, interest-free loans, which are popular among states, come with conditions requiring greater financial prudence," said the first person mentioned above, on the condition of anonymity.