Finance Commission Caps State Borrowing at 3%, Flags Off-Budget Loan Risks

• The Finance Commission recommends a 3% GSDP fiscal deficit cap for states from 2026–27 to 2030–31.
• States are urged to discontinue off-budget borrowings and bring all such loans onto their official budgets.
• The 16th Finance Commission suggests CAG include off-budget borrowing disclosures in State Finance Accounts.
• States should amend their FRBM laws to align with fiscal consolidation and expand deficit/debt definitions.
• The 3% borrowing ceiling, under Article 293(3), aims to ensure debt sustainability, excluding SASCI loans.

Why It Matters: States face a strict 3% borrowing cap and must end off-budget loans to ensure financial stability.