As per report released on Wednesday, states made off-balance sheet borrowings through various organisations in FY22, resulting in a 1 percentage point increase in such concealed loans to 4.5 percent of GSDP.

According to a research by ratings agency Crisil, based on an examination of 11 states accounting for three-quarters of GSDP, this will have an impact on the states' much needed capital development measures as resources will be diverted to debt service. After a year of contraction due to the impact of the Covid-19 pandemic, the Indian economy has recovered to pre-Covid levels.

Through different measures, policymakers are banking on capital development to speed up the revival. For the past few years, the Centre has been attempting to reduce its concealed borrowings and present a more accurate financial picture.

"These loans were financed by state-owned entities, which also guarantee the loans. This fiscal year, around 4% to 5% of state revenue will be used to service such guarantee obligations, limiting state governments' ability to fund capital investment " the agency said. It ascribed the governments' actions to constrained revenue growth as a result of the pandemic's slowdown, as well as increased revenue expenditure.

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