Delhi Gains Fiscal Autonomy, Can Now Borrow from Open Market
Delhi government gets green light to borrow from open market, marking a new fiscal era.
Photo by Chad Stembridge
Key Facts
Delhi government allowed to borrow from open market for the first time
Decision announced: January 5, 2026
Condition: Adherence to fiscal discipline norms
Delhi consistently reported revenue surplus and low fiscal deficit
UPSC Exam Angles
Polity (GS-II): Article 239AA, fiscal federalism, Centre-State financial relations, powers of Union Territories, local governance.
Economy (GS-III): State finances, public debt management, fiscal deficit, revenue surplus, GSDP, financial autonomy.
Constitutional Law: Interpretation of special provisions for UTs, 69th Amendment Act.
Visual Insights
Delhi's Evolving Fiscal Autonomy: A Geographic Perspective
This map highlights Delhi's unique status as a Union Territory with a legislature, now granted direct open market borrowing powers, akin to states. It contrasts Delhi's new status with other UTs with legislatures and full states.
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Evolution of Delhi's Fiscal & Legislative Status
This timeline traces key legislative and policy milestones that shaped Delhi's unique status, culminating in its recent fiscal autonomy.
Delhi's journey towards greater self-governance and fiscal autonomy has been marked by constitutional amendments, legislative acts, and judicial pronouncements, reflecting the complex dynamics of fiscal federalism in India's unique federal structure.
- 196214th Constitutional Amendment Act: Enabled creation of legislatures for UTs (e.g., Puducherry).
- 199169th Constitutional Amendment Act: Inserted Article 239AA, granting special status to Delhi as NCT with a Legislative Assembly.
- 1991Government of National Capital Territory of Delhi Act: Detailed powers of Delhi Assembly and LG. Borrowing still restricted via Union.
- 2018Supreme Court Ruling on Delhi-LG powers: Clarified that LG is bound by aid and advice of Council of Ministers on non-reserved subjects.
- 2019Jammu & Kashmir Reorganisation Act: J&K converted into a UT with a legislature, similar to Delhi/Puducherry.
- 2021GNCTD (Amendment) Act: Further defined powers of LG, giving him more discretionary powers over elected government.
- 2023Supreme Court ruling on Services in Delhi: Affirmed Delhi government's legislative and executive power over 'services' (excluding public order, police, land).
- 2026Delhi allowed to borrow directly from Open Market: Significant shift towards fiscal autonomy for Delhi. (Current News)
More Information
Background
The constitutional framework for Union Territories (UTs) is primarily laid out in Article 239 of the Indian Constitution, which vests their administration in the President. Historically, UTs have been financially dependent on the Union government, with their budgetary needs met through grants and loans from the Consolidated Fund of India, managed by the Ministry of Home Affairs or Finance Ministry. This arrangement stems from their unique status, lacking the full legislative and executive powers of states.
Delhi, however, gained a special status through the 69th Constitutional Amendment Act, 1991, which inserted Article 239AA and 239AB. This amendment created a Legislative Assembly and a Council of Ministers for the National Capital Territory of Delhi, granting it legislative powers over subjects in the State List and Concurrent List, except for public order, police, and land. Despite having a legislature, Delhi's financial autonomy remained limited, particularly regarding open market borrowings, due to the interpretation of its 'state-like' but not 'state' status, and the Union's overarching control over its finances.
This historical dependency has often been a point of contention, with the Delhi government advocating for greater financial independence akin to full-fledged states.
Latest Developments
In recent years, the discourse around fiscal federalism in India has intensified, with states and Union Territories increasingly demanding greater financial autonomy and a larger share in central revenues. The implementation of the Goods and Services Tax (GST) regime, while streamlining indirect taxes, also brought new dynamics to Centre-state financial relations, particularly concerning compensation for revenue losses. Union Territories with legislatures, such as Puducherry and the newly formed UT of Jammu & Kashmir, have also voiced similar aspirations for enhanced financial powers, including the ability to borrow directly from the open market.
The NITI Aayog and successive Finance Commissions have often deliberated on the financial architecture for sub-national entities, recommending measures for fiscal discipline and greater transparency. This decision regarding Delhi could set a precedent, potentially leading to similar demands and policy shifts for other UTs with elected governments, thereby reshaping the landscape of India's fiscal federalism and decentralization of financial powers. The ongoing challenge for all sub-national entities remains balancing fiscal autonomy with prudent debt management and adherence to national macroeconomic stability goals.
Practice Questions (MCQs)
1. With reference to the financial powers of Union Territories in India, consider the following statements: 1. All Union Territories with a legislature are constitutionally empowered to borrow directly from the open market. 2. The 69th Constitutional Amendment Act, 1991, specifically granted the National Capital Territory of Delhi the power to raise loans from the open market. 3. The borrowing powers of states in India are primarily governed by Article 293 of the Constitution.
- A.1 and 2 only
- B.3 only
- C.2 and 3 only
- D.1, 2 and 3
Show Answer
Answer: B
Statement 1 is incorrect. Historically, even UTs with legislatures like Delhi were restricted from open market borrowing, relying on the Union government. The recent news indicates a *new* allowance for Delhi, not a pre-existing constitutional empowerment for *all* such UTs. Statement 2 is incorrect. The 69th Amendment Act established the Legislative Assembly and Council of Ministers for Delhi but did not explicitly grant it the power to borrow from the open market; this power has been restricted until the recent decision. Statement 3 is correct. Article 293 of the Indian Constitution deals with the borrowing powers of states, allowing them to borrow within India upon the security of their Consolidated Fund, subject to certain conditions and the consent of the Central Government if they owe outstanding loans to the Centre.
2. Which of the following statements best describes the concept of 'fiscal autonomy' in the context of sub-national governments in India?
- A.The complete independence of a state or UT from the Union government in all financial matters, including tax collection and expenditure.
- B.The power of a state or UT to determine its own tax rates, manage its budget, and raise funds through various means, including borrowing, without direct central approval for every transaction.
- C.The ability of a state or UT to receive unconditional grants from the Union government to meet all its developmental needs.
- D.The right of a state or UT to reject all financial recommendations made by the Union Finance Commission and NITI Aayog.
Show Answer
Answer: B
Fiscal autonomy refers to the degree of independence a sub-national government has in managing its own finances. Option B accurately captures this by including the power to determine tax rates (within constitutional limits), manage budgets, and raise funds (including borrowing) with a degree of independence from direct central micro-management. Option A is too extreme, as complete independence is not feasible in a federal structure. Option C describes a form of financial assistance, not autonomy, and grants are rarely unconditional for all needs. Option D describes a rejection power, which is not the core of autonomy but rather a potential outcome of it.
3. Consider the following statements regarding the fiscal health indicators of sub-national governments in India: 1. A revenue surplus indicates that the government's non-borrowed receipts are sufficient to cover its non-debt creating expenditure. 2. Fiscal deficit represents the total borrowing requirements of the government to meet its expenditure. 3. A high Debt-to-GSDP ratio is generally considered a positive indicator of a state's fiscal sustainability.
- A.1 and 2 only
- B.2 and 3 only
- C.1 only
- D.1, 2 and 3
Show Answer
Answer: A
Statement 1 is correct. A revenue surplus occurs when revenue receipts (tax and non-tax revenues) exceed revenue expenditure, implying that the government is able to meet its day-to-day expenses without borrowing. Statement 2 is correct. Fiscal deficit is the difference between the government's total expenditure and its total receipts (excluding borrowings), representing the total amount of borrowing the government needs to finance its spending. Statement 3 is incorrect. A *low* Debt-to-GSDP ratio is generally considered a positive indicator of fiscal sustainability, as it suggests the state's economy is large enough to service its debt. A high ratio indicates a higher debt burden relative to the size of its economy, which can be unsustainable.
4. Assertion (A): The Union government has historically restricted the borrowing powers of the National Capital Territory of Delhi. Reason (R): Delhi holds a unique status as a Union Territory with a legislature, which differentiates its financial powers from those of full-fledged states.
- A.Both A and R are true and R is the correct explanation of A.
- B.Both A and R are true but R is not the correct explanation of A.
- C.A is true but R is false.
- D.A is false but R is true.
Show Answer
Answer: A
Both Assertion (A) and Reason (R) are true, and R is the correct explanation of A. The Union government indeed restricted Delhi's borrowing powers historically. The primary reason cited for this restriction was Delhi's unique constitutional status as a Union Territory with a legislature (under Article 239AA), which meant it was not a full-fledged state and thus its financial powers were subject to greater central oversight and control, unlike states whose borrowing powers are more explicitly defined under Article 293.
Source Articles
‘New era of fiscal prudence’: Delhi can now secure loans from open market to meet capital expenditure | Delhi News - The Indian Express
In run-up to elections, Delhi knocks at Centre’s door for Rs 10,000 crore loan | Business News - The Indian Express
Explained: Issues in Delhi govt’s request for Rs 10,000 cr loan from National Small Savings Fund | Explained News - The Indian Express
Delhi Government Seeks Loan From (NSSF): Delhi govt goes back to National Small Savings Fund loans — this time, for 50% more
Welfare populism is not just a budgetary concern — it is a question of national economic stability | The Indian Express