Archive · 11 Jun 2025
Centre Tightens State Borrowing Rules for Fiscal Discipline
The central government is making it harder for states to borrow money.
States now have to be more careful with how they manage their finances.
If states don't contribute enough to a fund to protect against loan defaults or if they have unspent money from central government programs, they may not be able to borrow as much.
On the other hand, states can borrow more if they make changes to their power sector or contribute to their employees' pension plans.
The Centre is tightening borrowing norms for states.
Borrowing limits for FY26 will be reduced based on state liabilities.
Shortfalls in GRF contributions, unpaid electricity subsidies, and unspent central scheme funds will affect borrowing.
States undertaking power sector reforms can get additional borrowing space.
Additional borrowing space will also be available for contributions to the National Pension System.
- Who
- The Centre and the states.
- What
- The Centre has tightened borrowing norms for states.
- When
- For FY26 and onward.
- Where
- India
- Why
- To instill fiscal discipline among the states.
- Net Borrowing Ceiling (NBC)
- 3% of each state’s GSDP
- Gross Borrowing Limit
- Up to 4.5% of GSDP with reforms
- GRF shortfall impact on borrowing
- Up to 0.25% of GSDP cut
- Unspent central scheme funds impact
- Up to 0.25% of GSDP cut
- Power Sector Reform Incentive
- 0.5% of GSDP additional borrowing space
