The Finance Commission warns against off-budget borrowings by States, urging strict fiscal discipline, as farmers await Budget 2026–27 for MSP guarantees, subsidies, climate resilience, and stronger agricultural support amid rising market and climate risks.
The 16th Finance Commission has raised serious concerns over the growing practice of off-budget borrowings by State governments, warning that such fiscal manoeuvres threaten long-term financial stability and debt sustainability. At the same time, with the Union Budget 2026–27 approaching, India’s farming community is closely watching fiscal signals for relief, income guarantees, and stronger policy support.
In its recommendations for the award period from 2026–27 to 2030–31, the Finance Commission has firmly reiterated that States must keep their fiscal deficits within the 3 per cent limit of Gross State Domestic Product (GSDP). The panel has cautioned States against bypassing this ceiling through off-budget borrowings, describing the practice as opaque and fiscally risky.
The Commission has emphasised that the 3 per cent borrowing cap must be strictly enforced under Article 293(3) of the Constitution. According to the report, allowing deviations or creative accounting weakens fiscal discipline and undermines the credibility of State-level financial management.
“States should completely discontinue the practice of incurring off-budget borrowings and bring all such borrowings onto their budgets,” the Commission stated. It added that if States resort to such borrowings under exceptional circumstances, there must be a clear framework for regular annual reporting, preferably integrated into the budget documents.
To improve transparency, the Commission has recommended that the Comptroller and Auditor General (CAG) include detailed disclosures on off-budget borrowings in State Finance Accounts. This move aims to ensure that hidden liabilities are brought into public scrutiny and factored into fiscal assessments.
Another major concern flagged by the Commission is the lack of uniformity in State-level Fiscal Responsibility Legislations (FRLs). The report points out inconsistencies in how States define fiscal deficit and public debt, creating loopholes that enable the accumulation of unreported liabilities. The Commission has urged States to amend their FRBM laws to align with the recommended fiscal consolidation path and broaden the definition of deficit and debt to include off-budget liabilities.
While tightening fiscal rules, the Commission clarified that interest-free on-lending by the Centre to States under the Special Assistance to States for Capital Investment (SASCI) will continue to remain outside the borrowing limits, as per current practice. This exemption is intended to encourage capital expenditure without compromising fiscal prudence.
The report also highlights a structural shift in India’s public borrowing pattern. Over the past decade, States have increasingly relied on market borrowings to finance their deficits. The share of State government borrowings in total government borrowings rose from about 33 per cent in 2015–16 to nearly 43 per cent in 2024–25. Consequently, outstanding State government securities have surged to around 33 per cent of GDP in 2025–26, compared to 24 per cent in 2015–16.
The Commission observed that higher market borrowings are partly driven by States’ limited use of the National Small Savings Fund (NSSF), pushing them further towards market-based debt instruments that often carry higher costs.
Under the fiscal roadmap proposed by the Commission, the Union government’s fiscal deficit is targeted at 3.5 per cent of GDP by 2031, while States are expected to maintain their deficits at 3 per cent. Together, this would result in a combined fiscal deficit of 6.5 per cent, which the Commission believes is consistent with medium-term macroeconomic stability.
As fiscal discipline comes under sharper focus, farmers across India are awaiting Budget 2026–27 with a different set of expectations. When Finance Minister Nirmala Sitharaman presents her ninth consecutive Union Budget on February 1, farmers hope for concrete assurances on subsidies, Minimum Support Price (MSP) guarantees, expanded credit access, and stronger climate-resilient measures.
The government has repeatedly underscored its commitment to four priority groups — the poor, women, youth, and farmers. Agriculture continues to receive substantial budgetary support through direct income transfers, crop insurance schemes, subsidised inputs, and institutional reforms.
Budgetary allocations to the Department of Agriculture and Farmers’ Welfare have risen sharply over the past decade, increasing from Rs. 21,933 crore in 2013–14 to Rs. 1.27 lakh crore in the Budget Estimates for 2025–26. Agricultural spending is also spread across multiple ministries, covering irrigation, fertilisers, renewable energy, rural employment, and research, reflecting a whole-of-government approach.
Despite this increase in absolute terms, agriculture’s share in overall public expenditure has been declining, raising concerns among farmer groups about the adequacy of support in the face of rising input costs and climate risks.
Farmer leader P. Krishnaprasad of the Samyukta Kisan Morcha highlighted persistent grievances, including falling fertiliser subsidies, inadequate irrigation infrastructure, and insufficient compensation for crop losses caused by floods and droughts. He also questioned the effectiveness of crop insurance schemes, citing gaps in implementation and delayed payouts.
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A major demand remains a legally guaranteed MSP that ensures profitability rather than distress sales. Krishnaprasad cited instances where farmers were forced to sell onions at extremely low prices, while retail prices in urban markets remained significantly higher, benefiting intermediaries rather than producers.
As the Finance Commission tightens the fiscal framework for States, the Union Budget faces the challenge of balancing fiscal consolidation with inclusive growth. For farmers, Budget 2026–27 represents a critical test of whether fiscal discipline can coexist with meaningful income security and long-term agricultural resilience.
