SRINAGAR: Public debt in Jammu and Kashmir has seen a significant rise over the past five years, reaching an estimated Rs 1,27,216 crore for the fiscal year 2024-25. The Comptroller and Auditor General of India (CAG) has expressed caution, citing increasing interest burdens, underwhelming returns on investments, and outstanding legacy liabilities as potential risks to the long-term sustainability of the Union Territory’s debt.
Information was available with The Chenab Times indicating that the overall liabilities have escalated from Rs 98,417 crore in 2020-21 to the current figure. While the pace of debt growth has moderated from over 10 per cent to approximately 7 per cent during this period, the absolute debt has continued to climb.
The CAG’s latest audit report on the finances of Jammu and Kashmir highlights an improvement in one crucial sustainability metric: the debt-to-GSDP (Gross State Domestic Product) ratio. This ratio decreased from 58.65 per cent in 2020-21 to 48.47 per cent in 2024-25. The audit observed that this reduction was primarily driven by nominal economic growth outpacing the rate at which debt accumulated, particularly during the post-pandemic economic recovery phase.
However, this apparent improvement masks underlying fiscal pressures. Interest payments have increased substantially year on year, rising from Rs 6,372 crore in 2020-21 to Rs 10,874 crore in 2024-25. Consequently, the ratio of interest payments to revenue receipts has climbed from 12.14 per cent to 14.62 per cent. The CAG noted that this escalating interest burden could constrain the fiscal space available for developmental and other essential expenditures in the medium to long term.
The cost of borrowing has also been on a consistent upward trajectory. The effective interest rate on overall debt increased from 7.52 per cent to 9.68 per cent over the reported period. Simultaneously, the returns generated from government investments have remained considerably lower. The audit report specifically flagged this negative spread, where the cost of borrowing exceeds the returns on investments, as a structural concern. This indicates that loans and advances extended by the government are not yielding commensurate financial returns, leading to an inefficient deployment of borrowed funds.
In parallel, the Union Territory’s liquidity management has exhibited signs of strain, although with gradual improvement noted. The number of days the government relied on ways and means advances or overdrafts from the Reserve Bank of India (RBI) decreased from 318 days in 2020-21 to 172 days in 2024-25. While this suggests better cash flow management, it still points to a frequent need for short-term borrowing to meet immediate financial obligations.
The audit further revealed that a substantial portion of new borrowings is being allocated towards servicing existing debt obligations. Repayments constituted over 80 per cent of gross borrowings across the entire period, leaving limited fiscal headroom for new initiatives. The net borrowings available for crucial developmental expenditure saw a dip to just 9.25 per cent in 2022-23, before recovering to 16.48 per cent in 2024-25.
Despite these fiscal challenges, certain indicators have shown positive movement. The primary balance, which excludes interest payments, shifted from a deficit in the earlier years of the period to a surplus in recent years, reaching Rs 2,728 crore in 2024-25. Similarly, the revenue account, which was in deficit previously, has registered surpluses since 2022-23, indicating an improvement in the revenue-generating capacity relative to expenditure, excluding debt servicing costs.
The CAG report acknowledged that favourable growth-interest dynamics, where economic growth outpaced the real cost of borrowing, played a role in stabilising the debt trajectory. However, this advantage has diminished in recent years as inflation moderated and interest rates hardened, narrowing the gap between economic growth and borrowing costs.
A significant concern highlighted in the report is the continuing burden of legacy debt, estimated at over Rs 82,050 crore. This debt was inherited from the erstwhile State of Jammu and Kashmir and is yet to be formally apportioned between the Union Territories of Jammu and Kashmir and Ladakh. This unresolved issue adds a layer of uncertainty to the precise current debt position.
Regarding contingent liabilities, the report noted that outstanding government guarantees stood at Rs 23,622 crore as of March 2025. A large proportion of these guarantees, over Rs 22,300 crore, were concentrated in the power sector. The audit raised concerns that guarantees were extended to certain public sector undertakings that possess a negative net worth, effectively transferring the repayment risk to the government.
Furthermore, the Comptroller and Auditor General of India pointed out deficiencies in financial disclosures. The report stated that risk-weighted guarantees were not fully reported in budget documents, as required under the Fiscal Responsibility and Budget Management (FRBM) framework, potentially obscuring the full extent of fiscal commitments.
In conclusion, the audit findings indicate that while Jammu and Kashmir’s debt indicators have seen some improvement due to economic growth, the rising cost of borrowing, increasing interest burden, inadequate returns on investments, and substantial contingent liabilities necessitate a more prudent and robust fiscal management strategy to ensure long-term financial sustainability for the Union Territory.
❤️ Support Independent Journalism
Your contribution keeps our reporting free, fearless, and accessible to everyone.
Or make a one-time donation
Secure via Razorpay • 12 monthly payments • Cancel anytime before next cycle
(We don't allow anyone to copy content. For Copyright or Use of Content related questions, visit here.)
The Chenab Times News Desk
