The borrowing by State public sector undertakings or their special purpose vehicles (SPVs) will be regarded as borrowing by the State government requiring authorization, said Finance Minister Nirmala Sitharaman's statement on Monday.

She said in a written reply to the Lok Sabha that instances of borrowing by specific State public sector enterprises, SPVs, and other analogous entities, whose principle and/or interest are to be serviced out of the State budgets, had come to the attention of the Ministry of Finance.

It was decided and communicated to the States in March 2022 that borrowings by State Public Sector Companies/Corporations, Special Purpose Vehicles (SPVs), and other equivalent instruments, where principal and/or interest are to be serviced out of the State Budgets and/or by assignment of taxes/cess or any other State's revenue, shall be considered as borrowings made by the State. This is because the effect of bypassing the Net Borrowing Ceiling (NBC) of the States by such borrowings.

This type of borrowing would need the consent of the central Government under Article 293(3) of the Constitution of India, she said.

The Fiscal Responsibility and Budget Management (FRBM) Act has been passed by every state. The different State Legislatures keep an eye on adherence to the State FRBM Act.

When exercising its authority to authorise borrowing by States under Article 293 (3) of the Indian Constitution, the Department of Expenditure, Ministry of Finance, normally complies with the budgetary restrictions prescribed by the accepted recommendations of the Finance Commission.

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