Hidden debt is a silent crisis lurking beneath India’s economic surface, particularly among states. During times of economic growth, states borrow excessively, seduced by the promise of continued prosperity. However, when the tide turns—when growth slows and repayments become due—the true scale of the financial burden emerges, exposing a fragile fiscal reality. For indian states like punjab, rajasthan, Telangana, andhra pradesh, karnataka, and Kerala, this dangerous trend has become all too common, threatening not only their fiscal health but also their ability to deliver essential services.
Punjab, rajasthan, and the Allure of Populism
In their pursuit of welfare schemes and subsidies, punjab and rajasthan have increasingly leaned on unsustainable borrowing practices. While these measures may momentarily soothe public demands or boost political capital, they defer accountability and exacerbate future financial stress. Welfare initiatives funded through hidden debt do not appear on the books immediately, allowing states to circumvent fiscal deficit ceilings, but they lay the groundwork for repayment crises in the future.
Telangana: A Case Study in Fiscal Mismanagement
Telangana’s off-budget liabilities reached a staggering ₹97,940 crore by 2021, nearly 10% of its GSDP. Much of this debt was tied to the state’s flagship infrastructure initiative, the kaleshwaram lift irrigation project, which alone consumed over ₹50,000 crore in borrowings. While the project is heralded as transformative, its financing strategy has raised alarms about the state’s long-term fiscal sustainability. Such debt-fueled ambitions, disguised as development, mask the real price that future generations will be forced to bear.
Andhra Pradesh: A Worsening Debt Crisis
Andhra Pradesh’s off-budget liabilities ballooned to ₹32,903 crore by 2023-24, with much of it linked to state public sector undertakings. For example, the andhra pradesh State Civil Supplies Corporation borrowed ₹30,181 crore to manage essential commodities. This pattern demonstrates the state’s growing reliance on opaque borrowing practices to meet immediate needs, while ignoring the looming fiscal storm on the horizon.
Karnataka: Hidden Debt in Irrigation Projects
karnataka is no stranger to the hidden debt dilemma, reporting off-budget borrowings of over ₹18,102 crore in 2021. Irrigation projects under entities like the karnataka Bhagya Jala Nigam consumed a significant portion of these borrowings. While water and irrigation are critical, the over-reliance on extra-budgetary borrowings has pushed the state closer to fiscal instability.
Kerala: Laws Are Not Enough
Kerala, often praised for its strong debt management framework, is far from immune to this problem. Despite having strict debt-to-GSDP limits enshrined in its laws, the state has routinely flouted these targets by relying on off-budget resources. This not only undermines the effectiveness of its legal safeguards but also highlights the systemic nature of fiscal mismanagement across states.
The Scale of the Problem
The numbers are damning. In 2020-21, India’s states reported off-budget liabilities totaling ₹2.79 trillion. While this figure dropped to ₹1.71 trillion in 2021-22, it still underscores the widespread dependence on fiscal trickery to finance large-scale projects. Even states with lower absolute off-budget liabilities, like West bengal (₹3,016.64 crore in 2021), remain guilty of pushing the problem into the future instead of tackling it head-on.
RBI’s Warning: A Call Ignored
The reserve bank of india (RBI) has repeatedly flagged the risks of hidden debt, warning that contingent liabilities pose a significant threat to state finances. If these liabilities materialize, the consequences could be devastating—crippling states’ ability to meet basic commitments or sustain developmental initiatives. Yet, state governments continue to ignore these warnings, prioritizing short-term optics over long-term financial health.
The Price of Fiscal Irresponsibility
The allure of hidden debt lies in its ability to mask the immediate financial strain. However, this practice is a ticking time bomb, threatening to derail states’ developmental agendas and burden future generations with insurmountable debt. India’s state governments must confront this crisis head-on, abandoning fiscal sleights-of-hand and embracing transparent, sustainable budgeting practices.
Failing to do so will only deepen the financial distress, leaving states ill-equipped to weather economic downturns or fund critical services. The time for action is now—before hidden debt transforms from a silent crisis into an unavoidable catastrophe.
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