**Executive Summary**
This document is a response to Lok Sabha Unstarred Question No. 1890, concerning borrowing limits, fiscal space, and planning support to Kerala, to be answered on February 11, 2026. The question was posed by Dr. Shashi Tharoor, inquiring about the Government's consideration of Kerala's concerns regarding reductions in its Net Borrowing Ceiling and related fiscal matters. The response clarifies the process for determining borrowing limits and fiscal support to states, including Kerala.
**Key Points / Main Content**
* **Net Borrowing Ceiling Deduction & Restoration:**
* The State Government of Kerala's (SGoK) borrowing consent was initially reduced due to under-reporting of Off-Budget Borrowings (OBBs) in FY 2023-24 as per the Comptroller and Auditor General (C&AG) report.
* Rs. 5,944.67 crore was deducted due to the difference in reported OBB amounts.
* Subsequently, Rs. 1,700 crores of borrowing consent were restored to Kerala following clarification from the State, designated for repayment of OBBs.
* **Assessment of State Finances:**
* The Comptroller and Auditor General of India assesses the fiscal position of States in its report 'State Finances 2022-23.'
* The Reserve Bank of India also assesses the fiscal position of all States in its report titled ‘State Finances: A Study of Budgets of 2025-26.’
* **Criteria for Borrowing Limits:**
* The Department of Expenditure, Ministry of Finance, uses a common yardstick based on Finance Commission recommendations to determine borrowing limits for States.
* The Net Borrowing Ceiling for State Governments is fixed at 3% of the projected GSDP for FY 2025-26.
* States can borrow an additional 0.5% of GSDP for certain performance-linked reforms in the power sector.
* **Special Assistance to States for Capital Investment (SASCI):**
* The Ministry of Finance provides financial assistance to States through SASCI annually, offering 50-year interest-free loans.
* Kerala has received Rs. 6,445 crore under SASCI from 2020-21 to 2025-26 as of February 4, 2026.
* Loans under SASCI are over and above the borrowing ceiling of the State.
* **Financial Condition Assessment and Devolution:**
* The Finance Commission assesses the financial condition of States every five years and recommends the quantum of devolution of central taxes and duties.
* Tax devolution to States has increased over time, from 32% to 42%, based on Finance Commission recommendations.
* Some States, including Kerala, receive Revenue Deficit Grant to bridge the gap between expenditure and revenue.
**Impact Analysis**
**Stakeholder**: State Government of Kerala (SGoK)
* **Impact**:
* SGoK is affected by the determination of its net borrowing ceiling, which impacts its ability to fund development and welfare programs.
* SGoK is impacted by the adjustments made to the borrowing limits based on reported OBBs and subsequent clarifications.
* Kerala benefits from the SASCI scheme, which provides interest-free loans for capital investment, in addition to revenue deficit grants.
* **Action Required**:
* SGoK needs to ensure accurate reporting of Off-Budget Borrowings to the Ministry of Finance.
* SGoK should continue to utilize SASCI to boost capital expenditure.
Key Entities Referenced
Constitution of India: Governs borrowing by states; specifically, Article 293(3) concerns borrowing limits
Finance Commission: Recommends the quantum of devolution of taxes & duties and grants to be made to States
Kerala: Indian state whose borrowing limits and fiscal management are the central focus
Ministry of Finance: Sets borrowing limits for states, implements schemes for assistance to states (SASCI), and is the central body of interest.
NITI Aayog: May assess states' fiscal positions to recommend borrowing limits.
GOVERNMENT OF INDIA
MINISTRY OF PLANNING
LOK SABHA
UNSTARRED QUESTION NO. 1890
TO BE ANSWERED ON 11.02.2026
BORROWING LIMITS, FISCAL SPACE AND PLANNING SUPPORT TO KERALA
1890. DR. SHASHI THAROOR
[
Will the Minister of PLANNING be pleased to state:
(a) whether the Government has taken note of the concerns
expressed by the Government of Kerala regarding reductions in
its Net Borrowing Ceiling for the January-March 2026 quarter
and the impact of such limits on the State’s ongoing
development and welfare programmes and if so, the details
thereof;
(b) whether NITI Aayog or any other central institution has
undertaken an assessment of Kerala’s fiscal position including
its debt levels, committed expenditure and development
indicators while recommending or approving borrowing limits for
the State and if so, the details thereof;
(c) the details of the criteria currently used by the Union
Government to balance fiscal discipline with State-specific
development needs; and
(d) whether any mechanism exists to factor in unique structural
challenges faced by the States such as Kerala while
formulating national planning and fiscal frameworks and if so,
the details thereof?
Page 1 of 4ANSWER
MINISTER OF STATE (INDEPENDENT CHARGE) OF THE MINISTRY OF
STATISTICS AND PROGRAMME IMPLEMENTATION; MINISTER OF
STATE (INDEPENDENT CHARGE) OF THE MINISTRY OF PLANNING AND
MINISTER OF STATE IN THE MINISTRY OF CULTURE
(RAO INDERJIT SINGH)
(a) Regarding deduction in borrowing consent to the State
Government of Kerala (SGoK) under article 293(3) of the
Constitution of India during the last quarter of financial year
(FY) 2025-2026, it is mentioned that in December, 2025, while
issuing borrowing consent for remaining period of FY 2025-26
(January-March 2026), it was observed that the Comptroller and
Auditor General (C&AG) of India in its Audit Report on Kerala
State Finances for the year 2023-24, published on 09.10.2025,
reported Off-Budget Borrowings (OBBs) of SGoK amounting to
Rs. 10,632.46 crore for the FY 2023-24.
However, the SGoK in the information submitted to the
Department of Expenditure, Ministry of Finance has reported
that the total OBBs for the FY 2023-24 are Rs. 4,687.79 crore
only. Therefore, the differential amount of Rs. 5,944.67 crores,
which was under-reported by the SGoK, was deducted from the
eligible borrowing space of the remaining period of FY 2025-26.
Subsequently, based on the clarification submitted by the State,
borrowing Consent amounting to Rs. 1,700 crores has recently
been restored out of the total deduction of Rs. 5,944.67 crores,
as replacement borrowing for the repayment of OBBs made by
the State Government.
(b) The Comptroller and Auditor General of India, in its report titled
‘State Finances 2022-23', has undertaken a comprehensive
assessment of the fiscal position of States, including debt levels,
Page 2 of 4committed expenditure, and other development indicators. In
addition, the Reserve Bank of India, in its report titled ‘State
Finances: A Study of Budgets of 2025-26’, has also assessed the
fiscal position of all States, including the SGoK.
(c) The Department of Expenditure, Ministry of Finance, while
exercising the power conferred under Article 293(3) of the
Constitution of India to allow borrowings to State Governments,
applies a common yardstick and generally follows the fiscal
limits mandated by the accepted recommendations of the
Finance Commission. Accordingly, the Net Borrowing Ceiling of
the State Governments has been fixed at 3 percent of the
projected GSDP of the FY 2025-26. Further, the States are
eligible for additional borrowing of 0.5% of Gross State Domestic
Product (GSDP) for certain performance-linked reforms in the
power sector, over and above the Net Borrowing Ceiling.
Moreover, to assist the States in boosting capital expenditure,
which has a higher multiplier effect and enhances the productive
capacity of the economy, the Ministry of Finance has designed
and implemented schemes for Special Assistance to States for
Capital Investment (SASCI)/ Expenditure annually since 2020-21.
Under these schemes, financial assistance in the form of 50-year
interest free loan is being provided to States. An amount of Rs.
6,445 crore has been released to Kerala under SASCI from 2020-
21 to 2025-26 (as on 04.02.2026). The loan provided under SASCI
is over and above the borrowing ceiling of the State.
(d) Assessment of financial condition of States including own
revenue, expenditure requirement and financial needs is done by
the Finance Commission every five years. The Commission also
recommends the quantum of devolution of central taxes & duties
and grants to be made to States and the inter-se share of States
in the devolution. Based on the recommendations of the Finance
Commission, the Union Government has increased the tax
Page 3 of 4devolution to States from 32% in the 13th Finance Commission
period to 42% in the 14th Finance Commission period. The 15th
Finance Commission also maintained same level of devolution
after adjusting 1% for Jammu and Kashmir. Further, some States
including Kerala were also provided Revenue Deficit Grant to
bridge the gap between State’s expenditure and revenue.
*********
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