The Constitution of India
Article 293
Borrowing by States
(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.
Why this exists
India's Constitution creates a federal structure where both the Centre and the States have their own funds and borrowing powers, but the States' finances are closely linked to and often dependent on the Centre. Article 293 was designed to give States real borrowing autonomy while ensuring the Centre — as the larger guarantor of financial stability and frequent lender to States — retains oversight when a State is already indebted to it. This balances state fiscal autonomy with national fiscal discipline, especially important given how much states rely on central loans and grants for capital projects.
How courts read it
There is limited direct judicial elaboration of Article 293 itself; most disputes around state borrowing have been resolved through fiscal and political negotiation rather than major litigation. Courts have generally treated Article 293 as part of the broader constitutional scheme (along with Articles 292 and 294-296) governing Union and State financial powers, and have deferred to the political and administrative processes between the Centre and States on loan conditions, rather than laying down transformative interpretations.
Common misconceptions
- Myth: States can borrow as much money as they want from anyone, anywhere.
Fact: States can only borrow within India, subject to limits set by their own legislature, and need central government consent if they already owe the Centre money. - Myth: The central government's loans to states are optional favors with no legal basis.
Fact: Article 293(2) specifically empowers and charges such loans on the Consolidated Fund of India, making it a constitutionally structured process, not an informal favor.