A newborn in Madhya Pradesh enters the world without signing a loan document. However, if the state government’s debt is divided across its population, the child carries an immediate statistical debt burden of around Rs 55,323. the reality is that by the time that child turns 22, the state could still be paying off the loans it is taking out today While no bank collector will ever show up at their door.
Key Factors
The state recently moved to raise Rs 2,800 crore from the market through two government securities. Of this, Rs 1,600 crore has been borrowed for eight years, while another Rs 1,200 crore has been raised for 22 years. In other words, part of the debt contracted in 2026 will remain on Madhya Pradesh’s books until 2048.
Evidence and Data
The auditor has also noted that in recent years the state’s debt has been growing faster than its economy. The longer-term numbers show how sharply the debt profile has changed. Once loans from the Centre, public-account liabilities and other obligations are added, the state’s overall liability burden becomes considerably larger. But the CAG’s findings place an uncomfortable question beside that defence. That question is likely to become more important with every passing year.
The Comptroller and Auditor General’s (CAG) State Finances Audit Report for 2024-25, tabled in the Assembly, says 29.43 per cent of the state’s total borrowing during the year went towards servicing past debt liabilities. The average for the preceding 10 years was almost identical at 29.30 per cent. Put simply, for every Rs 100 the Madhya Pradesh government borrows, nearly Rs 30 is absorbed by obligations arising from debt taken earlier. Madhya Pradesh’s internal debt stood at around Rs 83,718 crore in 2015-16. By 2024-25, it had risen to about Rs 3.33 lakh crore. If nearly Rs 30 out of every Rs 100 freshly borrowed is already needed to deal with past debt liabilities, how much of the new borrowing is actually left to create new assets?
The use of a significant share of fresh borrowing for servicing previous debt reduces the resources available for capital expenditure, according to the audit report.
Outlook
Borrowing can create future wealth when it finances a highway, an irrigation project, an industrial corridor or infrastructure capable of generating economic activity for decades. But when a substantial portion of fresh debt is needed to deal with old debt, the amount available for creating new assets inevitably gets squeezed.
