As freebies debate rages, a look at states' contingent liabilities

The net borrowing ceiling of states is mandated by the FRBM Act. However, the upper limit of what their contingent liabilities can be is set by states' own legislative bodies

In the recent Monsoon Session of Parliament, Finance Minister Nirmala Sitharaman informed Lok Sabha that borrowings by public sector undertakings and special purpose vehicles of states, where the principal and/or interest is being serviced by the state, will come under borrowings of that state.

Many such instances had come to the Finance Ministry’s notice, Sitharaman said and added the Ministry’s expenditure department had communicated to the states in March 2022 that “borrowings by state PSUs, SPVs and other equivalent instruments, where principal and/or interest are to be serviced out of the state budgets and/or by assignment of taxes/cess or