Plan panel finds debt stress spares no state

Commission makes case for capping states' general borrowings, seeks justification for identified projects.

Strange as it may sound, no state in the country could be described as non-debt stressed. The assessment was made on the basis of a list of six criteria identified by the Planning Commission.

West Bengal and Rajasthan qualify as debt stressed on all six counts.

Of the 25 states, only Tamil Nadu, Maharashtra and Karnataka had debt to net state domestic product (NSDP) ratio of less than 30 per cent. The debt to NSDP ratio was one of the benchmarks used to identify debt stressed states. Bihar, Orissa, Punjab, Arunachal Pradesh, Himachal Pradesh, Manipur, Mizoram and Sikkim had ratios exceeding 50 per cent.

The six criteria used to identify debt stressed states include a debt to gross state domestic product (GSDP) ratio of more than 30 per cent, debt to total revenue receipts (TRR) ratio of more than 300 per cent (200 per cent in case of special category states) and interest as a ratio of TRR of more than 18 per cent.

The Planning Commission has sought some sort of relief for the states, either a write-off of high-cost central loans, refinancing of existing debt to reduce interest rates or amortisation of payments. It has also advocated a strict control on interest and pensions, the two most unproductive items of non-plan expenditure.

"There is also a case for putting a cap on general purpose borrowing by the states, or phasing it out over the next few years. States should be asked to justify their borrowings against identified programmes," officials in the Planning Commission said.

New debt that states take up each year should be regulated, they added. There could also be a case for doing away with fresh lending by the states.

Among the measures in the offing was back-to-back on-lending for external assistance to states. The Centre was also considering eliminating the ways and means advances (WMA) window and eliminating medium-term loans to the states.

A cap on the overdraft facility with the Reserve Bank of India (RBI) was also being considered.

Flow of debt was measured by criteria like debt growth to revenue growth ratio of more than 1.25. Revenue deficit to fiscal deficit ratio of more than 50 per cent and a fiscal deficit to TRR ratio of more than 25 per cent were also used as criteria.

While 18 of the 25 states were above the debt to GSDP benchmark, only a third of these were above the debt-to-TRR benchmark, the study found.

As many as 14 states had interest payments as a proportion of TRR exceeding 18 per cent. In case of nine of these states, the ratio exceeded 25 per cent while in the case of two, it was more than 40 per cent.