{"id":64291,"date":"2025-09-20T10:55:12","date_gmt":"2025-09-20T05:25:12","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=64291"},"modified":"2025-09-20T11:51:26","modified_gmt":"2025-09-20T06:21:26","slug":"rising-public-debt-of-states-a-decadal-analysis-by-cag","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rising-public-debt-of-states-a-decadal-analysis-by-cag\/","title":{"rendered":"Rising Public Debt of States &#8211; A Decadal Analysis by CAG"},"content":{"rendered":"<h2 style=\"text-align: justify;\"><b>Rising Public Debt of States Latest News<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Comptroller and Auditor General of India (CAG) released a first-of-its-kind decadal <\/span><b>report <\/b><span style=\"font-weight: 400;\">(2013-14 to 2022-23) <\/span><b>on the fiscal health of states<\/b><span style=\"font-weight: 400;\">, highlighting a sharp increase in public debt and its implications for fiscal sustainability.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Meaning of Public Debt<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Public debt arises when government <\/span><b>expenditures exceed its revenue <\/b><span style=\"font-weight: 400;\">from taxes and other sources, <\/span><b>necessitating borrowing<\/b><span style=\"font-weight: 400;\"> from domestic and international markets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">In essence, public debt <\/span><b>includes all liabilities <\/b><span style=\"font-weight: 400;\">of the government funded through the Consolidated Fund of India or the Consolidated Fund of State (in case of a state government).\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This debt is<\/span><b> categorized into internal and external <\/b><span style=\"font-weight: 400;\">components, with\u00a0 internal debt further subdivided into <\/span><b>marketable and non-marketable securities<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Marketable <\/b><span style=\"font-weight: 400;\">government securities, such as G-secs and T-Bills, are issued through auctions, while <\/span><b>non-marketable<\/b><span style=\"font-weight: 400;\"> ones include treasury bills issued to state governments and special securities for the National Small Savings Fund.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Debt-to-GDP\/GSDP Ratio<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li aria-level=\"1\"><b>Meaning:<\/b><\/li>\n<\/ul>\n<ul style=\"text-align: justify;\">\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">A Debt-to-Gross Domestic Product (GDP) ratio\/ a Debt-to-Gross State Domestic Product (GSDP) ratio is <\/span><b>a critical metric<\/b><span style=\"font-weight: 400;\"> assessing a country&#8217;s\/ a state\u2019s ability to service its debt &#8211; indicating its ability to repay debt.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>A higher ratio signals greater fiscal risk<\/b><span style=\"font-weight: 400;\">, while a lower ratio suggests greater stability and capacity to handle debt.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Significance:<\/b><span style=\"font-weight: 400;\"> It is important for prudent fiscal management, as is crucial to evaluate the nature of government deficits\u2014whether they fund capital assets or non-asset-creating expenditures like subsidies.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Acceptable level of debt-to-GDP ratio: <\/b><span style=\"font-weight: 400;\">The NK Singh Committee (established in 2016 to review and recommend changes to the FRBM Act, 2003) proposed a debt-to-GDP ratio of &#8211;<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">40% for the central government and 20% for states,\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Aiming for a combined general government debt-to-GDP ratio of 60%.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Growth in States\u2019 Public Debt<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Total debt (internal debt and loans and advances from the Centre) increased<\/b><span style=\"font-weight: 400;\">: From \u20b917.57 lakh crore in 2013-14 to \u20b959.60 lakh crore in 2022-23 (rose by 3.39 times).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Debt-to-GSDP ratio<\/b><span style=\"font-weight: 400;\">: Increased from 16.66% (2013-14) to 22.96% (2022-23).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Contribution to National GDP<\/b><span style=\"font-weight: 400;\">: States\u2019 debt equaled 22.17% of India\u2019s GDP in FY 2022-23.<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Inter-State Variations in Debt Burden<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Highest Debt-to-GSDP ratios<\/b><span style=\"font-weight: 400;\">: Punjab (40.35%), Nagaland (37.15%), West Bengal (33.70%).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Lowest ratios<\/b><span style=\"font-weight: 400;\">: Odisha (8.45%), Maharashtra (14.64%), Gujarat (16.37%).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Distribution<\/b><span style=\"font-weight: 400;\">:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">As on 31st March 2023, <\/span><b>8 states<\/b><span style=\"font-weight: 400;\"> had public debt liability of more than 30%\u00a0 of their GSDP;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>6 states <\/b><span style=\"font-weight: 400;\">had public debt liability of less than 20% of their GSDP and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>The remaining 14 states <\/b><span style=\"font-weight: 400;\">had public debt liability between 20 to 30% of their respective GSDP in FY 2022-23.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Sources of States\u2019 Public Debt<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loans raised from the open market<\/b><span style=\"font-weight: 400;\"> through securities, treasury bills, bonds, etc.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loans from banks <\/b><span style=\"font-weight: 400;\">such as the State Bank of India (SBI).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Ways and Means Advances<\/b><span style=\"font-weight: 400;\"> (WMA) from Reserve Bank of India (RBI).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loans from financial institutions <\/b><span style=\"font-weight: 400;\">such as Life Insurance Corporation of India (LIC) and National Bank for Agriculture and Rural Development (NABARD).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Loans from the union government<\/b><span style=\"font-weight: 400;\">. <\/span><b>Example<\/b><span style=\"font-weight: 400;\">, back-to-back loans for GST compensation shortfall and special capital assistance (especially during COVID-19).<\/span><\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Debt Sustainability Indicators<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Debt as percentage of revenue receipts<\/b><span style=\"font-weight: 400;\">: Varied between 128% (2014-15) and 191% (2020-21).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Debt as percentage of non-debt receipts<\/b><span style=\"font-weight: 400;\">: Between 127% and 190%.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Average debt profile<\/b><span style=\"font-weight: 400;\">:\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">On an average, the public debt of the states has been about <\/span><b>150%<\/b><span style=\"font-weight: 400;\"> of their revenue receipts\/ total non-debt receipts.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Similarly, public debt has ranged between <\/span><b>17-25% <\/b><span style=\"font-weight: 400;\">of the GSDP and <\/span><b>20% <\/b><span style=\"font-weight: 400;\">of the GSDP.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>The marked increase of 4%<\/b><span style=\"font-weight: 400;\">, from 21% of GSDP in FY 2019-20 to 25% in FY 2020-21 is attributable to decrease in GSDP in FY 2020-21 being <\/span><b>Covid<\/b><span style=\"font-weight: 400;\"> year.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Fiscal Management Concerns<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Golden rule of borrowing:<\/b><span style=\"font-weight: 400;\"> Debt should finance capital expenditure, not revenue expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Violation of rule<\/b><span style=\"font-weight: 400;\">: 11 states (including Andhra Pradesh, Punjab, West Bengal, Kerala, etc.) used borrowings to finance current expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Example<\/b><span style=\"font-weight: 400;\">: Andhra Pradesh spent only 17% and Punjab 26% of borrowings on capital expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Risk<\/b><span style=\"font-weight: 400;\">:\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">GST compensation loans and COVID relief borrowing have altered debt dynamics.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Unsustainable fiscal practices resulting in <\/span><b>crowding out of productive investment<\/b><span style=\"font-weight: 400;\"> and debt trap potential.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">High state debt levels <\/span><b>threaten macroeconomic stability<\/b><span style=\"font-weight: 400;\"> and <\/span><b>strain Centre-State fiscal relations.<\/b><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2 style=\"text-align: justify;\"><b>Way Forward<\/b><\/h2>\n<ul style=\"text-align: justify;\">\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Fiscal discipline<\/b><span style=\"font-weight: 400;\">: States must align borrowing with productive capital creation, avoiding use for routine expenditure.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Debt management strategy<\/b><span style=\"font-weight: 400;\">: Establishing Public Debt Management Agency (<\/span><b>PDMA<\/b><span style=\"font-weight: 400;\">, proposed in the 2015 Union Budget) &#8211; enhanced transparency, improved monitoring, and debt restructuring mechanisms.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Strengthening state finances<\/b><span style=\"font-weight: 400;\">: Diversify revenue sources, rationalise subsidies, improve tax buoyancy, and reduce dependence on central transfers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Adherence to FRBM Act<\/b><span style=\"font-weight: 400;\">: Ensure fiscal prudence through legally binding debt and deficit targets.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Institutional mechanisms<\/b><span style=\"font-weight: 400;\">: Strengthening state finance commissions and CAG oversight for sustainable fiscal federalism.<\/span><\/li>\n<\/ul>\n<p style=\"text-align: justify;\"><b>Source: <\/b><a href=\"https:\/\/indianexpress.com\/article\/india\/cag-report-on-2013-14-to-2022-23-fiscal-health-of-states-under-strain-as-public-debt-trebles-in-10-years-10260370\/\" target=\"_blank\" rel=\"nofollow noopener\"><b>IE<\/b><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The CAG report on the fiscal health of states, highlights a sharp increase in public debt and its implications for fiscal sustainability.<\/p>\n","protected":false},"author":19,"featured_media":64298,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[2793],"class_list":{"0":"post-64291","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-rising-public-debt-of-states","9":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/64291","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=64291"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/64291\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/64298"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=64291"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=64291"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=64291"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}