Article 293 of Indian Constitution: Borrowing by States

Article 293 of Indian Constitution

Borrowing by States

(1) Subject to the provisions of this article, the executive power of a State extends to borrowing within the territory of India upon the security of the Consolidated Fund of the State within such limits, if any, as may from time to time be fixed by the Legislature of such State by law and to the giving of guarantees within such limits, if any, as may be so fixed.

(2) The Government of India may, subject to such conditions as may be laid down by or under any law made by Parliament, make loans to any State or, so long as any limits fixed under article 292 are not exceeded, give guarantees in respect of loans raised by any State, and any sums required for the purpose of making such loans shall be charged on the Consolidated Fund of India.

(3) A State may not without the consent of the Government of India raise any loan if there is still outstanding any part of a loan which has been made to the State by the Government of India or by its predecessor Government, or in respect of which a guarantee has been given by the Government of India or by its predecessor Government.

(4) A consent under clause (3) may be granted subject to such conditions, if any, as the Government of India may think fit to impose.

Note: "The information provided above has been sourced from the official website, i.e., Indian Code. While the content has been presented here for reference, no modifications have been made to the original laws and orders" 

Under the Indian Constitution Article 293 describes the borrowing powers of state governments . Clause (1) allows states to borrow within India, secured against their Consolidated Fund subject to limits set by their legislatures . Clause (2) allows the central government to lend to states or guarantee their loans, with such loans charged to the Consolidated Fund of India. Clause (3) restricts states from borrowing without central consent if they have outstanding loans or guarantees from the central government. Clause (4) enables the central government to impose conditions when granting such consent. The structure shows fiscal responsibility and coordination between state and central governments .

Article 293 of Indian Constitution : Landmark Cases

Many judicial pronouncements have explained the scope of Article 293 of Constitution :

• State of Kerala v. Union of India (2023) : The Supreme Court of India stated the conflict between Kerala and the central government relating to the imposition of a Net Borrowing Ceiling (NBC) limit on the borrowing capacity of the state . Kerala challenged this limit, arguing it infringed upon its constitutional rights under Article 293. The Court's observations highlighted the balance between state autonomy and central oversight in financial matters.
• Central Government v. State of Tamil Nadu (2002) : This case examined the validity of guarantees issued by the state government under Article 293(1). The court upheld the guarantees emphasizing that they were executed by competent authorities duly authorized under the said article. 

Article 293 plays a pivotal role in maintaining fiscal discipline within India's federal structure. By allowing states to borrow within prescribed limits and under certain conditions it ensures that state debts remain manageable. The requirement for central consent especially when previous loans are outstanding prevents states from accruing unsustainable debt thereby safeguarding the nation's overall financial stability. This article also facilitates cooperative federalism by promoting transparency and accountability in state borrowings.

Article 293 of Indian Constitution: Developments and Amendments

Since its inception , Article 293 does not have any amendments. Its application has evolved mainly concerning the role of the central government in regulating state borrowings. The central government has, at times, imposed borrowing ceilings on states to ensure compliance with fiscal responsibility norms. In 2023 the central government reduced NBC of Kerala showing concerns over the fiscal health of the state and adherence to the Fiscal Responsibility and Budget Management (FRBM) Act . Such measures underscore the dynamic interplay between state autonomy and central oversight in India's fiscal federalism. 

Conclusion

Article 293 of Indian Constitution builts the financial ties between the Centre and the states . It lets states handle their own finances. But it also makes sure they don’t harm the country’s overall financial health. The article strikes a balance. States can start their own financial plans but the Centre keeps an eye on them. This balance helps both state and national goals. It supports smooth working of India’s federal system .