Borrowing by State

Draft Article 269, Draft Constitution of India 1948

(1) Subject to the provisions of this article, the executive power of a State for the time being specified in Part I of the First Schedule extends to borrowing within the territory of India upon the security of the revenues 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, if any, as it may think fit to impose, make loans to States for the time being specified in Part I or Part III of the First Schedule or so long as any limits fixed under the last preceding article are not exceeded, give guarantees in respect of loans raised by any such State and any sums required for the purpose of making such loans shall be charged on the revenues of India.

(3) A State for the time being specified in Part I or Part III of the First Schedule 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 its predecessor Government or in respect of which a guarantee has been given by the Government of India or by its predecessor Government. A consent under this clause may be granted subject to such conditions, if any, as the Government of India may think fit to impose.

Article 293, Constitution of India 1950

(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.

Draft Article 269 (Article 293, Constitution of India 1950) was debated on 10 August 1949. The Draft Article stated that the executive power of the State extends to borrowing within India upon the security of revenues of the State. The Government of India may give loans to the State and may give guarantees to the loans raised by any State. A State cannot raise any loans without the consent of the Government of India if there is any part of the loan made to the State by the Government of India still outstanding.

The Chairman of the Drafting Committee moved three amendments as follows.

“i. That in clause (1) of article 269, the words and figures ‘for the time being specified in Part I of the First Schedule’ be omitted.   

ii. That in clause (1) of article 269, for the words ‘revenues of the State’ the words ‘Consolidated Fund of the State’ be substituted.

That with reference to amendment No. 2972 of the List of Amendments for clause (2) of article 269, the following clause be substituted :-

iii. (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 268 of this Constitution 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.”

One Member noted that the issue of borrowings and loans requires greater scrutiny as borrowing imposes heavy obligations upon not only the present generation but also the future generation and suggested that a Commission akin to Finance Commission may be constituted for all the time a loan needs to be raised.

It was observed that under the Government of India Act, there was a clause that the consent for borrowing ought not to be unreasonably delayed. Such a provision is not found in article 269, which the Member felt was not necessary with National Government both at the Centre and in the Provinces. He considered that this will help to keep a closer scrutiny of revenues of the Union and Provinces. The matter of raising loan would be placed before the Parliament and the Executive will not take the entire responsibility on itself.

One Member raised concerns over the ability of the Parliament to manage the financial complexities over borrowing including maintaining the national credit of India. He questioned who will determine about the paying capacity of States in case they want to borrow money. He argued for greater oversight by the Auditor-General to review and report the credit conditions of each province to the Parliament.

All the amendments were adopted. Draft Article 269 as amended was adopted on the same day.