Sp issue on 16th Fin Commission-Wl-5125-Public Sector Borrowings of Select States: Issues and Challenges

The paper estimates the public sector borrowing requirement (PSBR) for select Indian states, with the objective of deriving a realistic estimate of overall borrowing requirements of the public sector in these states. In doing so it quantifies the off-budget borrowings of states and also examines guarantees given by them in light of the provisions in their respective FRBM Acts. Seven states were selected based on factors which include among others their fiscal performance. The study covers the period from 2015-16 to 2021-22. The paper highlights the challenges in deriving estimates of components of PSBR namely, borrowings by the government owned and controlled entities like the public sector companies and off-budget borrowings by state governments. The study stresses on fiscal transparency which is critical to good governance and effective policy making. It is of the view that instead of focussing on a narrow definition of fiscal indicators like debt and deficit, a broader definition encompassing activities of the public sector would be useful in making fiscal policy realist and more effective.