Can a state government borrow loans or funds from other states in India? If yes, does the Union government or the President need to be involved in this? Is there any limitation to this?

I searched google but seems no direct answer for this.

1 Answer 1


The constitution of India considers states as independent entities and they are allowed to borrow funds from other states, from central government, or from (domestic/foreign) investors in the form of bonds

AP Government issuing bonds https://www.thenewsminute.com/article/amaravati-bonds-listed-bombay-stock-exchange-what-means-state-87297

Is there any limitation to this?

My Answer to this part will be vague and uses some examples from history. Germany had a similar issue during the 1920s. Government (Governments) misused their power and kept printing more money and used it to pay off nations debts & for its spending needs. Inflation rose to unprecedented levels in the history of the world. The case is the same with Venezuela and Zimbabwe now. After the crisis, German government etched into constitution dictating, No Government (Any party, central/State/province) cannot be fiscally deficit. They can be neutral but cant run deficits (for a duration). Germans, who saw the crisis first hand understood its importance and even today they ensure the law is implemented correctly.

In the case of Germany, they faced the consequences of their actions and were burnt. The lesson was learnt and they ensured sufficient measures were kept in place to evaluate the administrations for the forthcoming generations.

In the case of India, they got independence in 1947, and its markets were constrained till 1992 (Till Narsimha Rao/Manmohan regime opened the markets to global trade). People never saw how an inflation crisis looks like, hence no constraints were enacted into law. This allowed politicians to print more money to serve the nation's debts or to support their political promises. Sates, which had no power to mint money, embarked onto debt raising campaigns, to cover their political promises, hence you see such high levels of debt of the nation and its independent states. People aren't aware of extreme inflation effects, because they never witnessed its effects.

As there is no limitation, I see this continuing, unless they face a crisis. Only then, they might imbibe some lessons from other nations and may incorporate into its constitution. Today, the government acts as a donor (of, food, money, resources, equipment, bathrooms, tools, healthcare, and what not) for everyone. Unless this changes, nothing isn't going to change.

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