“Compared to the powers of the Union Government, state governments have limited powers to borrow.” Answer with reference to the Constitution.

By Srirangam Sriram, Sriram's IAS, New Delhi.

Article 292 of the Indian Constitution states that the Government of India can borrow on the security of the Consolidated Fund of India (CFI) as regulated by the Parliament from time to time.

Article 293 of the Indian Constitution mandates that the State Governments in India can borrow only from internal sources.

Thus the Government of India incurs both external and internal debt, while State Governments incur only internal debt.

Additionally, Art.293 makes the borrowing powers of the states conditional on the following: A State may not, without the consent of the Government of India, raise any loan if

• there is still outstanding any part of a loan which has been made to the State by the Government of India or
• in respect of which a guarantee has been given by the Government of India.

It means that centre has overriding powers over the states in the field of borrowing even from internal sources.

Published date : 19 Nov 2020 03:38PM