Introduction

Overlapping debt refers to a situation where multiple government entities share financial responsibility for a single debt obligation. This occurs when different levels of government—such as municipal corporations, state governments, and central agencies—issue debt for a project, leading to overlapping financial commitments.

In India, overlapping debt is commonly seen in urban infrastructure, transportation projects, and public welfare initiatives, where financing comes from multiple sources. While this allows for the efficient distribution of financial responsibility, it also raises concerns about fiscal transparency, debt management, and potential overborrowing.

This article explores the concept of overlapping debt, its causes, examples, impact, and how it can be managed effectively in India’s financial system.

What Is Overlapping Debt?

Overlapping debt occurs when two or more government jurisdictions share the same debt liability, even if the debt was originally issued by just one entity. This typically happens in municipal financing, public-sector infrastructure projects, and multi-level government borrowing.

For example, if a municipal corporation issues bonds to fund a metro rail project, but a state government or development agency also draws from the same funding pool, the debt obligation becomes shared across multiple entities.

Key Features of Overlapping Debt

• Multiple government bodies share the same debt responsibility
• Issued primarily for public-sector projects such as roads, schools, metro systems, and hospitals
• Results in shared tax burdens across different jurisdictions
• Common in large-scale projects where multiple funding sources are required

Causes of Overlapping Debt in India

Several factors contribute to overlapping debt in India’s public finance system:

1. Shared Responsibility Across Jurisdictions

Infrastructure and public service projects require joint funding from municipal, state, and central governments.

Example: The Delhi Metro Rail Corporation (DMRC) receives funding from both the Delhi Government and the Central Government, leading to overlapping debt obligations.

2. Multiple Taxing Authorities on the Same Borrowing

Different government bodies collect separate taxes but may use the same debt for infrastructure projects.

Example: A city municipality issues bonds for road development, but the state highway authority also funds the project, leading to shared financial obligations.

3. Intergovernmental Transfers & Grants

The Central Government provides grants to states, and states provide funding to local governments, creating indirect overlapping debt.

Example: Funds allocated for the Smart Cities Mission may be co-financed by municipal bonds, state budgets, and central funding, resulting in shared debt burdens.

4. Public-Private Partnerships (PPPs) & Hybrid Financing

Some projects involve government collaboration with private-sector entities, leading to multiple funding sources.

Example: Highways funded through toll collection bonds may involve both state and central authorities, leading to overlapping debt structures.

5. Lack of Centralized Debt Management

There is no single authority tracking debt obligations across different government entities, leading to unintentional overlapping debt accumulation.

Examples of Overlapping Debt in India

Overlapping debt is present in various public-sector projects, particularly in urban development, transport, and education.

1. Metro Rail Projects

• Cities like Mumbai, Bengaluru, and Hyderabad have metro projects financed by:
• Municipal bonds issued by local governments
• State government contributions
• Central government funding

Since multiple jurisdictions contribute, debt obligations overlap.

2. Highway Development & Urban Roads

• National highways are primarily funded by the Central Government, but states also issue:
• Infrastructure bonds
• Public-Private Partnership (PPP) loans

Example: The Mumbai-Pune Expressway had overlapping financial contributions from both Maharashtra Government and the National Highway Authority of India (NHAI).

3. Smart Cities & Urban Development

• The Smart Cities Mission receives funding from:
• Central Government allocations
• State Government budgets
• Municipal bonds issued by local bodies

This results in overlapping financial obligations.

4. Education & Healthcare Infrastructure

• Public schools and hospitals are often financed by:
• Municipal education funds
• State education grants
• Central Government development programs

Example: A new public hospital in a metro city may receive funding from both state health departments and central government healthcare schemes.

Impact of Overlapping Debt on Government Finances

1. Increased Taxpayer Burden

• Since multiple jurisdictions claim the same debt, taxpayers across different regions end up funding the same project, leading to inefficiencies.

2. Higher Public Debt Levels

• Overlapping debt can result in overborrowing, as different government bodies raise funds independently for the same project.

3. Lack of Debt Transparency & Accountability

• Since multiple entities share financial responsibility, tracking debt repayment becomes complicated and less transparent.

4. Higher Borrowing Costs

• If multiple agencies take loans separately, it can lead to higher interest costs than a centralized borrowing approach.

5. Challenges in Debt Repayment & Coordination

• Overlapping liabilities can lead to delayed payments, debt restructuring, or misallocation of funds between government agencies.

How Can Overlapping Debt Be Managed in India?

To improve financial stability, overlapping debt must be tracked, controlled, and regulated effectively.

1. Establish a Centralized Debt Tracking System

The RBI, SEBI, and Ministry of Finance should implement a real-time debt tracking platform to monitor government borrowings across jurisdictions.

2. Improve Coordination Between Government Entities

Municipalities, state governments, and the central government should align their funding strategies to prevent duplication of debt obligations.

3. Implement Borrowing Limits & Fiscal Discipline

SEBI and RBI should set borrowing limits for municipal bonds and state loans to reduce excessive overlapping debt.

4. Encourage Public-Private Partnerships (PPPs) for Infrastructure

By increasing private sector participation, the government can reduce its reliance on overlapping debt for infrastructure financing.

5. Improve Debt Transparency & Reporting Standards

Government agencies should disclose debt obligations clearly to ensure proper allocation of funds and avoid mismanagement.

Conclusion

Overlapping debt is a major challenge in India’s public finance system, as multiple government entities often share financial responsibility for the same projects. While this approach allows for joint investment in infrastructure and public services, it also creates complexities in debt management, fiscal transparency, and financial accountability.

To ensure efficient debt management, India needs stronger coordination between government bodies, better tracking mechanisms, and stricter borrowing regulations. As the country continues its infrastructure expansion, managing overlapping debt effectively will be crucial for maintaining fiscal stability and economic growth.