Part XII - Finance & Property • Article

Article 293 Simplified: Borrowing by States

Article 293 regulates how State Governments can borrow money. States can only borrow within India (no foreign loans) on the security of their State Consolidated Fund, up to limits set by their State Assembly. Crucially, if a state owes any outstanding debt to the Central Government, it cannot take any new loans without getting the Central Government's consent first.

Official Text

(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.

Simple Meaning

Explain Like Ten

State governments can also borrow money, but only from inside India, not from other countries. Also, if a state already owes money to the central government, it must ask the central government for permission before borrowing any more.

Student Mode

Article 293 establishes a structural check on state-level debt. Clause (1) permits States to borrow only within the territory of India upon the security of the State Consolidated Fund within limits set by the State Legislature. Clause (2) permits the Union to make loans or give guarantees to States. Clauses (3) and (4) restrict States with outstanding Central loans from raising new debt without the consent of the Government of India, which can impose strict fiscal conditions on such consent.

Example

If a State wants to borrow money by issuing state development bonds, and it still has unpaid loans from the Central Government, it must obtain permission from the Central Government. The Center can place conditions (like fiscal deficit targets) before granting this permission to enforce financial discipline.

Key Takeaway

States can only borrow within India. If they have outstanding central debt, they must obtain the Central Government's consent before raising new loans.

FAQs

Can a State Government borrow directly from the World Bank or a foreign bank?

No. Under Article 293(1), the borrowing power of States is strictly confined to borrowing 'within the territory of India.' External commercial borrowing is an exclusive Union subject.

Why is Article 293(3) called a tool of fiscal control?

Because almost all states have outstanding debts to the Center, they must get Central approval to raise new loans. The Center uses this power to enforce borrowing limits on states to prevent financial crises.

Quiz

Can a State Government borrow money from outside India?

Answer: No, it can only borrow within the territory of India

Under Article 293(3), whose consent is required for a State to borrow if it has outstanding central debt?

Answer: The Government of India