Article 293 is a provision of the Constitution of India located in Part XII (Finance, Property, Contracts and Suits) that governs the borrowing powers of State Governments. It is the federal counterpart to Article 292, which deals with the borrowing powers of the Union. The provision was created to balance the states' need for funds for development and welfare with the necessity of maintaining national financial stability. Its origin lies in Section 163 of the Government of India Act, 1935, which the Constituent Assembly adapted to preserve the Union's control over aggregate public debt. The drafters were concerned because seven out of nine provinces were burdened with outstanding loans at the time of the Constitution's framing.
The Article has four clauses that define the mechanism of state borrowing. Article 293(1) grants the executive power to a State to borrow within the territory of India upon the security of its Consolidated Fund, subject to limits fixed by the State Legislature by law. Crucially, a State has no constitutional authority to access foreign capital markets directly, a power reserved exclusively to the Union. Article 293(2) allows the Government of India to make loans to any State or give guarantees for loans raised by a State, with such sums charged on the Consolidated Fund of India. The most significant constraint is in Article 293(3), which mandates that a State cannot raise any loan without the consent of the Government of India if any part of a loan made to the State by the Centre (or its predecessor Government) or a loan guaranteed by the Centre remains outstanding. Article 293(4) further allows the Union Government to impose conditions when granting this consent.
This provision is central to the concept of fiscal federalism in India, as it gives the Union a powerful tool to regulate State finances and prevent irresponsible borrowing. A recent development involves the interpretation of this Article in the Supreme Court case of State of Kerala v. Union of India. The State of Kerala challenged the Union's imposition of a 'Net Borrowing Ceiling' and other actions, arguing they exceeded the Union's power under Article 293. The Supreme Court noted that the case raised substantial questions regarding the scope of Article 293 and the principles of federalism, referring the matter to a larger bench for consideration. The Union has also progressively tightened the treatment of state-entity guarantees, signaling that contingent liabilities would increasingly count toward a state's borrowing space.