The problem
Indian states increasingly finance roads, bridges, hospitals and other public assets through borrowing by special purpose bodies and public sector undertakings, rather than directly through the state budget. This has allowed investment that the state could not otherwise afford within its borrowing limits. It has also made it harder for legislators, auditors and citizens to see the total obligations that the state has taken on, and how they will be repaid.
The question has become politically charged, with disputes between the Union and states over whether such borrowing should count against state borrowing limits. Lost in the dispute is a simpler point on which all sides should agree: whatever the accounting rule, the public deserves to know the numbers.
What we found
Our review of state budget documents found that:
- information on borrowing by state bodies is spread across several documents, in different formats and at different dates
- repayment obligations that will fall on the state budget in future years are rarely set out in one place
- guarantees given by the state to lenders are disclosed, but their likely cost is not estimated
- legislators receive little time or analytical support to examine these figures
Recommendations
- Publish an annual Statement of Extended Public Liabilities alongside the budget, listing borrowing by every state owned body that is serviced wholly or partly from the budget, with the repayment schedule for the next ten years.
- Estimate the expected cost of guarantees, not only their face value, using a published method.
- Refer the statement to the Committee on Estimates or a new fiscal committee of the legislature for examination each year.
- Ask the state’s auditor to certify the statement within six months of the end of the financial year.
Why this matters
Transparency does not settle the argument about how much a state should borrow. It makes that argument possible on the basis of shared facts. A state that discloses its full obligations will find it easier to defend its borrowing to lenders, to the Union and to its own citizens.
[Placeholder publication. This sample shows the structure of a policy brief. Replace with real CRGD work.]