India’s Off-Budget Borrowings: Evolution and Impact

Linking off-budget liabilities with capital vs revenue classification, subsidy burden, and contingent liabilities creates better policy trade-offs.

By P SESH KUMAR

NEW DELHI, September 22, 2025 — Off-budget borrowings—those raised by public sector entities or via instruments whose principal and/or interest are serviced from government budgets yet which do not figure fully in the conventional fiscal deficit—have long presented challenges in India’s fiscal transparency, sustainability, and debt accounting.

In recent years the Central Government has reduced and effectively discontinued some of the most significant channels of off-budget borrowing (notably NSSF loans to FCI), improved disclosures, and brought many legacy liabilities onto the books. States, by contrast, continue to use off-budget mechanisms to varying degrees, although with rising regulatory and normative pressure to limit them.

Over the past half-decade, India’s public finance architecture has increasingly confronted the issue of “extra-budgetary resources” (EBRs) or off-budget borrowings. These are obligations that do not immediately appear in the government’s consolidated fund or budget deficit figures, but whose servicing (interest, principal repayment or subsidy obligations) is ultimately borne by the public budget.

A prominent case has been loans from the National Small Savings Fund (NSSF) to the Food Corporation of India (FCI) in lieu of food subsidies and other subsidy arrears. Between 2016-17 and 2020-21, these NSSF-to-FCI loans accounted for about ₹4.3 lakh crore, representing roughly two-thirds (≈67 %) of all off-budget borrowing by the Centre during that period.

If those loans had been included in deficit figures, the actual fiscal deficit in years such as 2018-19 and 2019-20 would have been nearly one percentage point of GDP higher than officially reported.

However, since FY 2021-22, the Government of India discontinued new NSSF loans to FCI for subsidy financing; instead, budget provisions have been increased to cover food subsidy payments directly. Outstanding NSSF obligations from earlier years have been either repaid or are on course for clearance. This measure has significantly reduced one of the largest channels of off-budget borrowing.

Data from a recent Rajya Sabha unstarred question (July 2025) states that off-budget borrowings undertaken by the Central Government through issuance of fully serviced Government Bonds and NSSF loans were as follows over the last five years: in FY 2020-21, about ₹1,21,301.10 crore (which includes ₹751.80 crore) to meet certain prior commitments (Polavaram Irrigation Project); and in FY 2022-23, FY 2023-24, and FY 2024-25, nil. This implies that new off-budget borrowings by the Centre have effectively been stopped since FY 2022-23.

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At the same time, States have continued to engage in off-budget borrowing, though the scale is much smaller relatively. The same source reports that off-budget borrowings by States were ~₹67,181.27 crore in FY 2020-21; ~₹35,772.91 crore in FY 2021-22; ~₹21,250.75 crore in FY 2022-23; ~₹29,335.61 crore in FY 2023-24; and similar magnitude in FY 2024-25.

These borrowings are mostly by state‐owned entities whose principal and/or interest are serviced by state budgets or by assignment of taxes/cess or other state revenues.

On disclosure, the Central Government has improved substantially. Off-budget borrowings are now disclosed in budget documents—particularly in “Statement No. 27: Expenditure Profile” of the Budget—which show the magnitude and modalities (e.g. NSSF loans, fully serviced bonds) of such borrowings.

The Finance Ministry’s responses in Parliament have confirmed that from FY 2022-23 onwards, off-budget borrowings by the Centre have been discontinued. Outstanding amounts remain part of the debt stock of Government of India, in terms of the debt metrics under the FRBM Act. Comptroller and Auditor General (CAG) reports, along with analysis by independent researchers (e.g. PRS, Gupta & James), have pointed out continuing gaps in completeness of disclosure (e.g. liabilities in certain entities not included) but the overall picture is far more transparent than before.

Concerning whether off-budget borrowings are counted in fiscal deficit: official reported fiscal deficits do not include most off-budget borrowings unless specifically brought into the budget or if the government takes over the liability.

Historically, NSSF loans to FCI and similar items were outside the headline deficit. Once these were discontinued and replaced by direct budgetary subsidy payments, their effect on the reported deficit disappears with new ones. When researchers include off-budget borrowings in “adjusted fiscal deficit” estimates, the deficit increases by roughly ~0.8 to ~1.0 percentage point of GDP in years when substantial off-budget borrowing occurred (for example, FY 2018-19, FY 2019-20) but in recent years this adjusted vs reported gap has narrowed sharply because major off-budget instruments have been terminated or are no longer material.

Putting all this together, the current situation (as of FY 2024-25) is that for the Central Government, new off-budget borrowing via large channels like NSSF to FCI has been stopped; disclosures are quite good; legacy liabilities are declining. For States, off-budget borrowing remains non-zero, though reduced compared to the peak (during or just after the COVID years), and with heightened oversight under fiscal responsibility norms and regulatory accounting directives.

Policy Lessons

The evolution of off-budget borrowing in India over the past few years illustrates both the risks of ignoring these liabilities and the possibility of remedy through institutional reforms. There are several lessons for fiscal management at both Centre and State levels.

First, terminating or substantially reducing major off-budget channels (such as NSSF loans for food subsidy) enhances fiscal transparency and avoids surprises in debt servicing. Central reforms show this can be done without severely disrupting subsidy policy, so long as food/subsidy flows are properly budgeted.

Second, bringing outstanding off-budget liabilities onto official debt stock is important. Under the FRBM framework such liabilities are or can be counted; doing so provides a more realistic picture of public debt, which matters for market credibility, rating agencies, and intergenerational equity.

Third, disclosure improvements are as important as reforms themselves. Regular statements of extra-budgetary resources, inclusion in budget documents, parliamentary oversight, audit reports, and civil society / academic tracking strengthen discipline.

But gaps remain: some entities or instruments whose liabilities ultimately rest on government support are still outside full disclosure; ensuring uniformly that all such liabilities are captured is critical.

Fourth, for States, the challenge is greater because borrowing limits (constitutional, under Article 293, etc.) combined with pressures on welfare and infrastructure spending create incentives to use off-budget routes. States need clear rules under their Fiscal Responsibility Legislations (FRLs) so off-budget debt or extra-budgetary liabilities are both reported and, where appropriate, counted in assessing their borrowing limits or debt ceilings.

Fifth, the Centre should continue to lead with best practices—aggressive disclosure, ending new off-budget borrowing, managing legacy liabilities—and consider whether headline deficit metrics (both union and consolidated general government) should continue to evolve (or be supplemented) to include extra-budgetary liabilities that are fully government-serviced. This may help in aligning public understanding, investor expectations, and policy choices with actual fiscal realities.

Sixth, in both Centre and States, linking off-budget liabilities with capital vs revenue classification, subsidy burden, and contingent liabilities creates better policy trade-offs. For example, knowing precisely how much of off-budget borrowing goes into subsidies (which have crowding-out or price distortion effects) versus infrastructure may guide better prioritization.

Finally, institutional mechanisms (such as strengthened audit, possibly a fiscal council, improved accounting standards, periodic reviews) should formalize the inclusion, disclosure, and oversight of off-budget liabilities. Only then can fiscal discipline truly align with sustainable debt trajectories without opaque burdens or hidden risks.

In sum, India has made real progress: off-budget borrowing by the Centre has largely been curtailed, disclosures are far better, and adjusted deficit/ debt metrics are increasingly aligned with actual obligations. States still face some work in reducing reliance, improving transparency, and ensuring that borrowing (on- or off-budget) is managed within sustainable norms. If this path continues, both Centre and States will enjoy stronger fiscal credibility, lower borrowing costs, and greater policy flexibility to address development needs.

(This is an opinion piece, and views expressed are those of the author only)

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