Rising debts in Kerala, Bengal, Punjab concerning: RBI

Call it competitive federalism in a new avatar. Indian states are vying for top slots in the pecking order of debt accumulation as the outstanding debt burdens of these federal entities stay on an upward trajectory since the Covid-19 pandemic hit, with Madhya Pradesh topping the rise with a 79 per cent jump.

- NIVEDITA MUKHERJEE

This is as per the Reserve Bank of India's report on state finances, A Study of Budgets of which highlights Tamil Nadu, Uttar Pradesh, Maharashtra, West Bengal, and Rajasthan as contributing significantly to taking the total debt accumulated by India's state governments and Union Territories (UTS) to a record high during the financial year 2022-23 by registering a huge increase in their liabilities on an annual basis. While trends in state finances usually make the local headlines during elections to an assembly for war over merit or demerits of government spending, the matter has gone beyond election rhetoric, with growing national recognition and uneasiness among policymakers that state debt has spiked considerably and is uncomfortably above the tolerance band.

Underscoring the concern are numbers from the government during the Budget session of Parliament in 2023, which peg a 43 per cent rise in the outstanding liabilities of 28 states in the three years from March 2020 to March 2023. All in all, the outstanding liabilities of all these states are expected to reach Rs 75 lakh crore by the end of FY23, up from Rs 52 lakh crore in March 2020, when the COVID-19 pandemic forced a nationwide lockdown in India. The RBI report flags the spike in debt burdens as a "cause for concern as refinancing this debt over the coming years will keep interest rates in the economy high".