India’s fiscal federalism is under strain, and much of it stems from a growing yet largely concealed debt burden that states are accumulating threw off-budget borrowings. While state governments face increasing financial pressures, their reliance on opaque funding mechanisms ~ often with the tacit approval of the Union government ~ undermines fiscal discipline and long-term economic stability.

The core issue is not just mounting debt but the lack of transparency, political favouritism and structural imbalances in financial governance. For years, states have resorted to borrowing through public sector enterprises and special-purpose vehicles instead of directly raising debt under their own names. These off-budget liabilities, while not formally reflected in state budgets, impose real financial obligations that will ultimately fall on taxpayers. The Union government, too, has engaged in similar practices by shifting its own fiscal burdens onto public sector undertakings. However, when states follow suit, the........

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