Examine whether borrowing to finance welfare expenditure compromises long-term fiscal sustainability. Illustrate with recent State budget trends.

Article 293 permits States to borrow, and FRBM-type State Acts cap that borrowing at 3% of GSDP. The stress lies less in the level of debt than in its composition — borrowing that funds current welfare consumption rather than asset creation weakens sustainability, though welfare spending is not inherently unsustainable.

How welfare-driven borrowing strains sustainability

• Revenue deficit financing: when borrowing plugs a revenue gap, debt creates no matching asset stream. Tamil Nadu's revenue deficit persisted through 2025-26 alongside expenditure of ₹4,39,293 crore, up 10% over RE 2024-25 [1].
• Interest crowding out capex: RBI finds States with debt servicing above 15% of revenue spent under 2% of GSDP on capital outlay, against a 2.7% average [2] — the classic debt trap where borrowing services past borrowing.
• Rising aggregate stress: consolidated State debt is budgeted to climb to about 29% of GDP by March 2026, with several States above 35% of GSDP against the 20% norm [2]; RBI flags cash-transfer schemes, pay commission awards and climate shocks as compounding risks [2].

Why the compromise is not automatic

• Rule-bound borrowing: Tamil Nadu's fiscal deficit is pegged at 3.0% of GSDP with outstanding debt near 26% — within FRBM limits [3], showing welfare-heavy States can stay rule-compliant.
• Human-capital returns: nutrition, health and education transfers raise productivity and future tax capacity; debt sustainability turns on whether growth outpaces the interest rate, not on spending labels.
• Revenue-side causes: sluggish own-tax buoyancy and transfer design matter as much as scheme costs — hence the Sixteenth Finance Commission's focus on fiscal discipline and debt paths for 2026-31 [4].

Borrowing for welfare compromises sustainability only when it is untied to revenue mobilisation and outcome discipline. The way forward lies in rationalising overlapping schemes, DBT-based targeting, widening own-tax revenue, and ring-fencing capital outlay — so that redistributive justice under the Directive Principles rests on a solvent fiscal base rather than eroding it.