Article 293

Background and evolution

Borrowing powers in a federation determine how far states can finance development independently. The Government of India Act, 1935 allowed provinces to borrow with central consent in certain cases, and the Constitution carried this forward. The Union may borrow both within India and abroad under Article 292, while states may borrow only within India under Article 293.

For decades, states owed large amounts to the Centre for plan loans and small savings, so almost every state needed central consent for any market borrowing. The Union, through the Ministry of Finance, sets an annual net borrowing ceiling for each state, usually expressed as a percentage of the state's gross state domestic product, following Finance Commission recommendations.

Key features and provisions

• Clause (1): the executive power of a state extends to borrowing within India upon the security of the Consolidated Fund of the state, within limits fixed by the state legislature, and to giving guarantees within such limits.
• Clause (2): the Government of India may make loans to any state or give guarantees for loans raised by a state, within limits fixed by Parliament under Article 292.
• Clause (3): a state may not, without the consent of the Government of India, raise any loan if any part of a loan made to it by the Union, or guaranteed by the Union, is still outstanding.
• Clause (4): consent may be granted subject to conditions that the Government of India thinks fit to impose.
• No foreign borrowing: states cannot borrow directly from abroad; external assistance for state projects comes through the Union.
• State FRBM laws: every state has a Fiscal Responsibility Legislation setting deficit and debt targets.