Article 293

Article 293 of the Constitution of India defines the borrowing powers of State Governments. It provides the constitutional framework within which States can raise loans and manage their financial liabilities while ensuring coordination and control by the Union Government. This provision forms an integral part of India’s financial federal structure, balancing the States’ fiscal autonomy with the Union’s responsibility for overall economic stability.

Constitutional Context and Objective

Article 293 is part of Part XII of the Constitution, which deals with finance, property, contracts, and suits. It complements Article 292, which governs the borrowing powers of the Union Government. Together, these articles establish a comprehensive system of public debt management in India.
The objective of Article 293 is to allow States the necessary financial flexibility to fund development and welfare programmes, while preventing excessive or uncoordinated borrowing that could jeopardise national financial stability.

Borrowing Powers of States

Under Article 293(1), the executive power of a State extends to borrowing money within India upon the security of the Consolidated Fund of the State, within limits fixed by the State Legislature. This gives States the constitutional right to raise internal debt to finance their expenditures.
Key features of this borrowing power include:

• Domestic Borrowing Only: States can borrow money only within India; foreign borrowing is not permitted without central approval.
• Security Mechanism: All borrowings are secured against the Consolidated Fund of the State, ensuring repayment obligations are backed by the State’s financial resources.
• Legislative Oversight: The State Legislature may prescribe limits on borrowing and guarantees, thereby maintaining accountability within the State’s fiscal framework.
• Provision of Guarantees: States may issue financial guarantees within the limits set by law, enhancing their capacity to attract credit for public projects.

These provisions enable States to mobilise resources for capital investment, infrastructure development, and welfare schemes essential for regional growth.

Role of the Central Government

The Central Government plays a vital regulatory and supervisory role in the borrowing activities of the States, as outlined in Article 293(3) and 293(4):

• Under Article 293(3), if a State is indebted to the Union Government, either for loans previously taken or for guarantees provided by the Union, that State cannot raise any new loan without the consent of the Government of India.
• This consent mechanism gives the Centre oversight to prevent States from engaging in excessive borrowing that might impair their ability to repay existing Union debts.
• Under Article 293(4), the Union Government, when giving such consent, may impose conditions deemed necessary to safeguard national fiscal interests or ensure prudent use of borrowed funds.

This relationship ensures coordinated debt management across the federal system and prevents States from accumulating unsustainable debt burdens.

Interaction between the Union and the States

The borrowing relationship under Article 293 reflects India’s quasi-federal financial structure, where both tiers of government share fiscal powers but remain interdependent. While States have autonomy to raise internal debt, the Union’s supervisory role maintains macroeconomic stability and protects national creditworthiness.
This arrangement is particularly relevant when States have substantial outstanding liabilities to the Centre, as it allows the Union to regulate new borrowings and prevent fiscal mismanagement.

Legislative and Institutional Framework

The borrowing powers under Article 293 are exercised within a framework of legislative and institutional mechanisms designed to ensure fiscal discipline:

• State Laws: Each State Legislature can make laws prescribing limits and procedures for borrowing and issuing guarantees.
• Central Legislation: Parliament may enact laws regulating the terms and conditions of loans made to States by the Union, and the guarantees provided for such loans.
• Reserve Bank of India (RBI): Acts as the debt manager for both the Union and the States, conducting borrowing operations, issuing securities, and maintaining records of public debt.
• Finance Commission: Periodically reviews the financial position of States and recommends measures to maintain fiscal stability, including debt restructuring or grants-in-aid.
• Fiscal Responsibility Legislations (FRLs): Many States have enacted their own FRL Acts, in line with the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, to institutionalise financial discipline.

Relationship with Article 292

While Article 292 governs the borrowing powers of the Union, Article 293 applies specifically to the States. The two articles function harmoniously to regulate public borrowing in a coordinated manner.
Key distinctions include:

• The Union may borrow both within and outside India, while States are restricted to borrowing within India.
• The Union’s borrowing is secured against the Consolidated Fund of India, whereas State borrowing is secured against the Consolidated Fund of the State.
• Parliament sets limits for Union borrowing, whereas the State Legislature and, in some cases, the Union Government regulate State borrowing.

This division ensures that both levels of government exercise borrowing powers responsibly, without undermining national financial stability.

Implications for State Finances

Article 293 has significant implications for the fiscal management of States:

• Fiscal Autonomy: States enjoy considerable freedom to raise loans for development projects, subject to central conditions when indebted to the Union.
• Development Financing: Borrowing allows States to fund infrastructure, social welfare, and capital expenditure projects that contribute to regional growth.
• Debt Sustainability: The requirement of central consent for indebted States prevents fiscal crises and ensures that borrowings remain within manageable limits.
• Political and Economic Impact: The borrowing relationship between the Centre and States occasionally influences Centre–State relations, particularly in matters concerning fiscal autonomy and federal balance.

Role in Fiscal Discipline and Economic Policy

Article 293 is a cornerstone of India’s fiscal discipline framework. It ensures that State borrowing aligns with broader macroeconomic objectives, such as controlling inflation, managing deficits, and maintaining public debt sustainability.
By linking borrowing to the Consolidated Fund, the Constitution mandates transparency and accountability in public finance. Moreover, central oversight prevents competitive over-borrowing by States, which could destabilise national credit ratings or financial markets.

Judicial and Constitutional Interpretation

There have been limited direct judicial interpretations of Article 293. However, its principles have been discussed in broader contexts of fiscal federalism, debt management, and Centre–State financial relations. The courts have recognised the importance of maintaining balance between fiscal autonomy and coordination, affirming the constitutional validity of central oversight in financial matters when required for national stability.

Practical Applications

In practical governance, Article 293 operates through structured financial arrangements:

• States raise loans through the issue of securities, market borrowings, or negotiated loans from financial institutions.
• The Union Government often provides loans for centrally sponsored schemes or State-specific projects.
• States also extend guarantees for public sector undertakings and cooperative institutions to secure project financing.
• The Reserve Bank of India acts as the borrowing agent, ensuring compliance with statutory and fiscal parameters.

Significance in the Federal Framework

Article 293 exemplifies the cooperative nature of Indian federalism in financial management. It ensures:

• State fiscal independence within constitutional limits.
• National fiscal coordination, preventing unregulated debt accumulation.
• Balance between autonomy and accountability in State borrowing practices.