Dr Bhabesh Hazarika
(Economist, National Institute of Public Finance and Policy, New Delhi)
Assam has emerged as one of India's rapidly expanding state economies in recent years. The Reserve Bank of India has emphasised this performance, and the government's Medium-Term Fiscal Plan anticipates nominal GSDP rising from approximately Rs 6.44 lakh crore in 2024-25 to Rs 7.42 lakh crore in 2025-26 and Rs 8.68 lakh crore by 2026-27, following growth rates of 19.1 per cent in 2023-24 and 12.7 per cent in 2024-25. The state's contribution to India's GDP has consistently increased during the past ten years. An accelerating economy inherently broadens the revenue base and enhances budgetary capacity. The forthcoming budget debate should not solely concentrate on the extent of government borrowing but rather on the careful management of that borrowing.
The steady rise in Assam's public debt has attracted increasing public attention recently. As borrowing has increased to support the state's development ambitions, questions have naturally arisen regarding the sustainability of the current fiscal path. The state's development ambitions have naturally led to questions about the sustainability of the current fiscal path. The state's development ambitions have naturally led to questions about whether the current fiscal path is sustainable. Questions about the sustainability of the current fiscal path have naturally arisen. The state's development ambitions, which drive borrowing, have naturally raised questions about the sustainability of the current fiscal path. This situation raises concerns about the sustainability of the current fiscal path due to the state's development ambitions driving borrowing. This situation raises concerns about the sustainability of the current fiscal path. This concern is valid. Nonetheless, debt alone conveys only a portion of the narrative. A rapidly expanding economy can support a greater degree of indebtedness than a stagnating economy. The pertinent enquiries are whether debt is increasing in accordance with the state's repayment capabilities, whether fiscal regulations are being adhered to, and whether borrowed funds are being used effectively. Evaluated against these criteria, Assam's budgetary condition is more equitable than the political discourse frequently implies.
The debt-to-GSDP ratio is the predominant indicator for assessing debt sustainability. Assam's total liabilities rose from Rs 87,408 crore in 2020-21 to Rs 1.73 lakh crore in 2024-25. The increase, in isolation, seems substantial. During the same period, nominal GSDP nearly doubled, increasing from Rs 3.40 lakh crore to Rs 6.44 lakh crore. The debt-to-GSDP ratio rose slightly, from 25.7 per cent to 26.8 per cent, but is well below the 32 per cent limit established under the Assam Fiscal Responsibility and Budget Management Act. The government's medium-term forecasts suggest that the ratio will remain within this threshold until 2026-27.
The budget deficit presents a comparable scenario. Similar to other states, Assam increased its borrowing during the epidemic, following the temporary relaxation of borrowing limits by the union government. The fiscal deficit rose from 3.6 per cent of GSDP in 2020-21 to 7.1 per cent in 2021-22. Subsequently, it decreased to 6.2 per cent in 2022-23 and 3.7 per cent in 2023-24. The medium-term fiscal plan anticipates a deficit of 3.7 per cent of GSDP in 2025-26, decreasing to 3.3 per cent in 2026-27. The overall trajectory is promising. It indicates that Assam is progressively distancing itself from pandemic-related borrowing and reverting to a rule-based fiscal structure. The objective is to maintain this consolidation without undermining the public investment that has facilitated the state's recent rise.
The more important question is what the borrowed money is financing. Utilising debt to fund regular expenses results in liabilities without generating future productive capacity. Borrowing for infrastructure and other capital projects has distinct implications, as it enhances future growth and increases the state's capacity to manage debt. Recent trends in this regard are promising. Capital outlay rose from 3.65 per cent of GSDP in 2023-24 to 4.11 per cent in 2024-25. The projection indicates a sustained high rate of 3.96 per cent in 2025-26 and 3.72 per cent in 2026-27. The capital outlay-to-revenue expenditure ratio is projected to enhance from 22.8 per cent in 2023-24 to 25.0 per cent in 2025-26, subsequently dropping a little to 24.7 per cent in 2026-27. The revenue deficit conveys a similar narrative. In 2023-24, it constituted 0.46 per cent of GSDP and is anticipated to diminish to nearly nothing by 2026-27. Collectively, these statistics imply that a growing proportion of public borrowing is funding capital formation instead of current expenditures. This is a crucial criterion for enduring budgetary sustainability.
The sustainability of public debt ultimately depends on whether interest payments begin to absorb fiscal resources that would otherwise finance development expenditure. Assam's interest payments almost doubled, rising from Rs 5,199 crore in 2020-21 to Rs 9,468 crore in 2024-25. The ratio of interest payments to GSDP was relatively stable, decreasing from 1.53 per cent to 1.47 per cent during the period. The medium-term fiscal plan anticipates the ratio will remain approximately 1.5 per cent until 2026-27. Interest payments are less than 10 per cent of the state's revenue collections. Currently, debt servicing does not seem to significantly restrict fiscal policy. Maintaining this position, however, will necessitate continuous revenue expansion and judicious borrowing.
Revenue mobilisation is arguably the domain that warrants the utmost policy focus. Assam's tax revenue rose from Rs 17,134 crore in 2020-21 to over Rs 30,000 crore in 2024-25, with projections exceeding Rs 37,000 crore by 2026-27. Nonetheless, as a proportion of GSDP, personal tax revenue decreased from 5.04 per cent to 4.67 per cent during the same timeframe and is anticipated to further diminish to approximately 4.3 per cent by 2026-27. The elucidation resides in the state's own forecasts. Nominal GSDP is anticipated to expand at approximately 17 per cent yearly, while principal state taxes are forecasted to increase by 10 to 12 per cent. Without an enhancement in tax buoyancy, the state's revenue base will persist in expanding at a rate slower than that of the economy. The subsequent phase of fiscal reform should concentrate on enhancing GST compliance, fortifying tax administration, widening the tax base, and augmenting non-tax income. Enhanced revenue mobilisation would establish a more sustainable source of fiscal space than increased borrowing.
Contingent obligations warrant consideration. Outstanding guarantees are now low, approximately 0.4 per cent of GSDP; however, they have experienced a progressive increase recently. While they do not currently present an immediate budgetary threat, historical evidence indicates that guarantees can swiftly transform into explicit government liabilities when public sector entities face financial distress. Consequently, they should remain under vigilant observation.
The evidence indicates that Assam's fiscal condition is more robust than political discourse typically recognises. Debt is maintained under the legal threshold, the fiscal deficit is anticipated to progressively align with the FRBM trajectory, capital investment is consistently prioritised, and the interest burden is kept under control. These are significant strengths that furnish the state with essential budgetary capacity.
The subsequent stage of Assam's fiscal strategy should prioritise enhancing the quality of state finances over borrowing. As the state embarks on a phase of swift economic progress, the aim should be to transform current prosperity into enduring budgetary robustness.
The next budget presents a chance to accomplish precisely that. Fiscal consolidation must persist; however, it should not compromise capital investment. Infrastructure, irrigation, urban development, and human capital are the assets that will eventually ascertain if current borrowing yields future growth. Secondly, Assam must enhance tax buoyancy. The forecasts indicate that the state's revenues are unlikely to match the economic growth. Enhancing GST compliance, modernising tax administration, broadening the property tax base in metropolitan regions, and augmenting non-tax income mobilisation should thus be integral components of the state's fiscal plan. The subsequent phase of reform should concentrate on enhancing the efficiency of revenue collection rather than increasing tax rates. The government should prioritise fiscal transparency. Releasing an annual debt sustainability assessment in conjunction with the budget, featuring explicit medium-term forecasts for debt, interest payments, guarantees, and fiscal risks, would enhance policy credibility and augment public comprehension of the state's finances. As borrowing becomes more common for long-term infrastructure, being open and honest is just as important as being disciplined.
Ultimately, the discourse should transition from questioning the extent of Assam's borrowing to evaluating the efficacy of its borrowing practices. The evidence indicates that the state's financial trajectory is generally stable. The objective now is to sustain that trend by safeguarding capital investment, enhancing income mobilisation, and upholding budgetary discipline. If the upcoming budget succeeds in these areas, Assam would maintain its growth trajectory and establish the groundwork for lasting budgetary sustainability.