States go on borrowing spree as Covid-19 stings

Mumbai: The States, reeling from massive revenue losses due to coronavirus lockdowns, have front-loaded their borrowings by a whopping 76 per cent so far this fiscal to Rs 1.93 lakh crore, says a report.

Front-loading of market loans has been on the back of the Centre relaxing the ways and means advances norms to manage cash-flow mismatches due to the pandemic, says a report by Care Ratings. In addition, the Centre has also relaxed the fiscal deficit target from 3 to 5 per cent. "Between April 1 and July 14, the States' market borrowings have jumped to Rs 1.93 lakh, which is 76 per cent higher than the corresponding period last fiscal year, says the report.

The aggressive borrowings will further shoot up the outstanding debt of all the States which has more than doubled to Rs 52.6 lakh crore in FY20, growing at an annual rate of 14.3 per cent between FY15 and FY20, notes the report. Outstanding debt of the states includes market borrowings, power sector-specific Ujwal DISCOM Assurance Yojana (UDAY) bonds, funds borrowed from the National Social Security Fund, banks, and other financial institutions, ways and means advances, loans from the Centre, provident funds, reserve funds and other contingency funds.

The ratio of States' outstanding debt to total internal debt, which is the combined debt of the Centre and the States has increased from 30.9 per cent in FY15 to 35.1 per cent in FY20, says the agency's chief economist Madan Sabnavis.

Of the total debt, as much as 72 per cent is with the top 10 states. The list is led by Uttar Pradesh with an outstanding debt of Rs 6 lakh crore in FY20, accounting for 11 per cent of total debt of all the States, it said. At the second slot is Maharashtra with an outstanding debt of Rs 5 trillion, accounting for 10 per cent of total debt of all states, followed by Bengal, Tamil Nadu, Rajasthan, Andhra, Gujarat, Karnataka, Kerala and MP. However, despite having a high debt burden, Maharashtra, Tamil Nadu, Gujarat and Karnataka have a debt to GSDP ratio of under 25 per cent for the past many years, as stipulated by the 14th Finance Commission. On the other hand, UP, Bengal, Rajasthan, Andhra, and Kerala have high debt levels and also the debt-GSDP ratio above the stipulated norms, the report said. As many as 18 states have a debt-GSDP ratio of over 25, and of them 12 have it over 30, it said.