World Bank (WB) Recommends Karnataka PSU Borrowing Model for State Fiscal Transparency

Key facts

• The World Bank (WB) report for the 16th Finance Commission (FC) identified Karnataka as a template for including Public Sector Undertaking (PSU) and Special Purpose Vehicle (SPV) debt in state liabilities.
• Karnataka amended the Karnataka Fiscal Responsibility Legislation Act in February 2014 to broaden the definition of liabilities and curb off-budget borrowing (OBB).
• The Union Government brought 93 per cent of its off-budget liabilities, approximately ₹3.7 trillion, onto its balance sheet by Financial Year (FY) 2022.
• The WB found discrepancies in OBB reporting for 2021-22, noting Tamil Nadu reported ₹594 crore against the Comptroller and Auditor General of India (CAG) estimate of ₹12,357 crore.
• West Bengal disclosed ₹1,089 crore in OBB compared to the CAG audit figure of ₹4,311 crore for an earlier year.
• In 2022-23, spending under Minor Head 800 – Others accounted for over 15 per cent of expenditure in Madhya Pradesh, nearly 15 per cent in Tamil Nadu, and close to 12 per cent in Andhra Pradesh.
• State entities borrowed between ₹3.1 trillion and ₹4.9 trillion annually from Public Sector Banks (PSBs) from 2018-19 to 2022-23.
• Major lenders for state-level OBB include the National Bank for Agriculture and Rural Development (NABARD), Housing and Urban Development Corporation (HUDCO), REC, and Power Finance Corporation (PFC).
• The report proposed a standardised reporting framework for OBB to be enforced by the CAG under Article 150 of the Constitution.