Jammu Kashmir’s Debt Nears Rs 1.27 Lakh Crore as CAG Flags Sustainability Concerns | Kashmir Life

SRINAGAR: Public debt in Jammu and Kashmir has climbed steadily over the past five years to touch Rs 1,27,216 crore in 2024-25, with the Comptroller and Auditor General of India cautioning that rising interest burdens, weak returns on investments and legacy liabilities could pose risks to long-term debt sustainability.

The latest audit report on the Union Territory’s finances shows that overall liabilities increased from Rs 98,417 crore in 2020-21 to the current level, even as the pace of growth moderated from over 10 per cent to about 7 per cent during the period.

While the absolute debt has risen, the report notes an improvement in one key sustainability indicator, the debt-to-GSDP ratio, which declined from 58.65 per cent in 2020-21 to 48.47 per cent in 2024-25. This reduction, the audit observed, was driven largely by nominal economic growth outpacing the rate of debt accumulation, particularly in the post-pandemic recovery phase.

However, this relative improvement masks underlying fiscal pressures. Interest payments have increased sharply over the years, rising from Rs 6,372 crore in 2020-21 to Rs 10,874 crore in 2024-25, pushing up the interest-to-revenue receipts ratio from 12.14 per cent to 14.62 per cent. The CAG noted that this growing burden could affect fiscal space over the medium to long term.

The cost of borrowing has also been rising steadily. The effective interest rate on overall debt increased from 7.52 per cent to 9.68 per cent during the period, while returns on government investments remained significantly lower. The audit flagged this negative spread, where borrowing costs exceed returns, as a structural concern, indicating that loans and advances extended by the government are not yielding commensurate returns.

At the same time, the Union Territory’s liquidity management showed signs of strain, though with gradual improvement. The number of days on which the government resorted to ways and means advances or overdrafts from the RBI declined from 318 days in 2020-21 to 172 days in 2024-25, suggesting better cash management but still indicating frequent reliance on short-term borrowing.

The audit also highlighted that a large portion of fresh borrowings is being used to service past debt. Repayments accounted for over 80 per cent of gross borrowings throughout the period, leaving limited fiscal headroom. Net borrowings available for developmental expenditure dipped to just 9.25 per cent in 2022-23 before recovering to 16.48 per cent in 2024-25.

Despite these pressures, some fiscal indicators have improved. The primary balance, which excludes interest payments, moved from a deficit position in the initial years to a surplus in recent years, reaching Rs 2,728 crore in 2024-25. Similarly, the revenue account, which was in deficit earlier, has posted surpluses since 2022-23.

The CAG noted that favourable growth-interest dynamics, where economic growth outpaced the real cost of borrowing, helped stabilise the debt trajectory during the period. However, this advantage has narrowed in recent years as inflation moderated and interest rates hardened.

Another critical aspect flagged in the report is the continuing burden of legacy debt amounting to over Rs 82,050 crore, inherited from the erstwhile State and yet to be apportioned between the Union Territories of Jammu and Kashmir and Ladakh. This adds to the uncertainty surrounding the actual debt position.

On contingent liabilities, the report noted that outstanding government guarantees stood at Rs 23,622 crore as of March 2025, largely concentrated in the power sector, which alone accounted for over Rs 22,300 crore. The audit flagged that guarantees were extended to certain public sector undertakings with negative net worth, effectively shifting the repayment risk to the government.

The Comptroller and Auditor General of India also pointed out gaps in disclosure, noting that risk-weighted guarantees were not fully reported in budget documents as mandated under the Fiscal Responsibility and Budget Management framework.

Overall, the audit concludes that while Jammu and Kashmir’s debt indicators show signs of improvement due to economic growth, the rising cost of borrowing, increasing interest burden, weak returns on investments and large contingent liabilities underline the need for prudent fiscal management to ensure long-term sustainability.