Public debt of states in India has increased significantly in the last one decade. In this context discuss the constraints of the states in planning prudent fiscal management. (Answer in 350 words)

- Public debt of states in India has increased significantly in the last one decade. In this context discuss the constraints of the states in planning prudent fiscal management. (Answer in 350 words)
Introduction
State public debt in India has risen due to higher welfare commitments, infrastructure spending, pandemic-related shocks and persistent revenue pressures. Prudent fiscal management is therefore constrained by both structural and institutional factors.
Body
### Constraints on States
1. Limited Tax Autonomy:
After GST, States surrendered several indirect taxes. Their own-tax flexibility is largely confined to areas such as petroleum, alcohol, property and vehicle taxation.
2. Dependence on Central Transfers:
A substantial share of State finances comes from tax devolution and grants, making fiscal planning vulnerable to variations in Central transfers and cesses outside the divisible pool.
3. High Committed Expenditure:
Salaries, pensions and interest payments consume a large portion of revenue receipts, leaving limited fiscal space for developmental expenditure.
4. Welfare and Electoral Pressures:
Subsidies, farm-loan waivers, free electricity and other populist commitments can create recurring liabilities without corresponding revenue streams.
5. Growing Infrastructure Needs:
Urbanisation, health, education, irrigation and transport require large capital expenditure, compelling States to borrow despite fiscal constraints.
6. Fiscal Responsibility and Budget Management (FRBM) Borrowing Limits:
Fiscal Responsibility legislation and borrowing ceilings under Article 293(3) restrict States’ ability to independently expand debt-financed expenditure.
7. Unequal Fiscal Capacity:
Economically weaker States have narrower tax bases but larger developmental needs, producing greater dependence and debt stress.
8. Power-sector Liabilities:
Loss-making DISCOMs and guarantees extended to State enterprises create significant contingent liabilities.
9. Off-budget Borrowings:
Borrowing through State PSUs and special-purpose vehicles may conceal liabilities and weaken fiscal transparency.
10. Economic Shocks:
Pandemics, natural disasters, commodity-price fluctuations and economic slowdowns reduce revenue while simultaneously raising expenditure requirements.
### Towards Prudent Fiscal Management
- Improve own-tax mobilisation and property-tax administration.
- Rationalise poorly targeted subsidies and adopt outcome-based budgeting.
- Prioritise capital expenditure over revenue giveaways.
- Improve transparency in guarantees and off-budget liabilities.
- Strengthen State Finance Commissions and local-government finances.
- Develop medium-term fiscal frameworks and independent fiscal-risk assessment.
Conclusion
Thus, States face a difficult balance between fiscal prudence and developmental responsibility. Sustainable debt management requires greater revenue autonomy, expenditure quality, fiscal transparency and predictable Centre-State financial relations.