Implication of Article 293 of the Constitution of India on State Borrowing
Exploring the kinds of conditions that the Centre can and should impose on State borrowing
Summary: This report recommends an alternative fiscal arrangement for effectively regulating sub-national borrowing, and identifies criteria and conditions which the Centre can impose under Articles 293(3) and (4) of the Constitution.
Article 293(4) of the Constitution enables the Centre to impose conditions on State borrowing when it is granting consent for the same under Article 293(3). This applies in cases where States are indebted to the Centre. The objective of this report is to examine the scope of conditions that are permissible under Article 293(4), and the kinds of conditions that ought to be imposed.
It first studies Article 293 in the context of subnational borrowing regulation in India, analysing the historical background and provisions thereof, particularly the scope of conditions which may be imposed under Article 293(4) from a legal perspective. It also surveys the existing institutional and legal architecture of subnational borrowing regulation in India. It then proceeds to analyse relevant policy considerations in this regard, focusing on the decentralisation dilemma. In light of this, the question of designing appropriate fiscal incentives for States and creditors is considered. In this context, the peculiarities of the Indian experience with subnational borrowing regulation is studied in order to determine the particular constraints, policy objectives, and concerns in this regard and to determine an appropriate path for reforms. The international practice on this subject is also reviewed, including various types of ex-ante and ex-post regulations employed across the world, as well as their relevance to the Indian context.
On the basis of this extensive study, the report recommends an alternative fiscal arrangement that India can employ to effectively regulate subnational borrowing, and lists out the potential criteria and conditions which may be imposed under Articles 293(3) and (4). It also provides recommendations to adequately cater to a scenario where States are no longer indebted to the Centre. The report also includes a study of the provisions contained in all State fiscal responsibility legislations.
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About the Authors
Damini is Team Lead for Disability (Inclusion & Access). She primarily handles engaged/commissioned projects from various ministries, statutory authorities and regulators, where she provides legal research and drafting support at various stages of law-making. Damini works on a variety of legal and regulatory matters and allied issues in public policy. Prior to joining Vidhi, Damini worked at Shardul Amarchand Mangaldas & Co and thereafter at Tuli & Co where she focused extensively on insurance regulatory advisory (non-contentious) work, product development and general corporate matters. She has also undertaken policy work and advised on several other regulatory issues arising under the foreign contribution laws, labeling rules of packaged commodities, and law governing drugs and cosmetics in India. She has also worked as a legal consultant to the Central Information Commission and advised on various issues arising under the Right to Information Act, 2005. Damini graduated from the National University of Juridical Sciences, Kolkata (NUJS) in 2008 with a B.A., LL.B. (Hons.) and obtained her LL.M. degree in regulatory laws and policy from the University of Pennsylvania Law School in 2013.
Lalit is a graduate of the Gujarat National Law University and has been working at the Vidhi Centre for Legal Policy since 2017. Prior to joining Vidhi, he worked briefly as a Consultant with the 21st Law Commission of India. At Vidhi, he has worked in the broad areas of law and technology, regulation and constitutional law, covering subjects such as data protection, higher education, election law, fiscal federalism, and state governors. As a 2020 Samvidhaan Fellow, he conducted interdisciplinary research into the right to equality, including from the perspective of law & economics. Currently, he works in Vidhi's constitutional law team, Charkha, engaging with contemporary issues such as the right against discrimination and secularism. He writes regularly for news outlets such as The Times of India, Economic Times and The Telegraph, and has published research in the Indian Journal of Constitutional Law, Indian Journal of Law & Technology, and Journal of Intellectual Property Studies
Kevin was a Research Fellow at Vidhi.
Arghya is the Founder and Research Director at Vidhi. His areas of specialisation are constitutional law and regulation of the digital economy. He has served on a number of government committees including the B.N. Srikrishna-led committee of experts on a data protection framework for India. Arghya has a number of academic publications on the Supreme Court and the Constitution in leading law journals such as Law Quarterly Review and Public Law. He is also a columnist at The Telegraph and The Times of India. He has most recently authored a book “Independence and Accountability of the Indian Higher Judiciary” (Cambridge, 2019) which builds on his doctoral work at Oxford University. Prior to founding Vidhi, he was at Oxford as a Lecturer in Administrative Law at Pembroke College.
