Finance Commission Draws Red Line: States Face Trouble Exceeding 3% Borrowing Limit

• The 16th Finance Commission recommends states' fiscal deficit be capped at 3% of GSDP from 2026-27 to 2030-31.
• Off-budget borrowings are deemed a significant risk; states advised to reflect them directly in budgets for transparency.
• CAG is mandated to include off-budget borrowing information in state finance accounts.
• States urged to amend FRBM laws to include off-budget liabilities in deficit and debt definitions.
• States' market borrowings have risen, now accounting for 43% of total government borrowings in 2024-25.

Why It Matters: Finance Commission sets strict 3% fiscal deficit limit for states, warns against off-budget borrowings.