Statsguru: State govts' debt on a risky path amid Covid-19 crisis

The Covid-19 crisis has put nations in a fix with the International Monetary Fund saying that global government debt may cross the level of 100 per cent of the size of the world economy this year.

In India, the combined outstanding debt stock of the Union and state governments is estimated to be Rs 147 trillion at the end of March 2020, a level that is about three-fourths of its gross domestic product (GDP). It has worsened from 67 per cent of GDP five years ago (chart 1) to 72 per cent now, when it should have been on its path of gradual decline towards 60 per cent by 2024-25.

A third of this debt is outstanding at the sub-national, or the state level. Indian states owe Rs 53 trillion to lenders as of March 2020, which is nearly 26 per cent of the provisional GDP — up from 22 per cent at the end of 2014-15 (chart 2).

Further, state governments guarantee debt held by companies they own (SPSEs), such as power discoms. These guarantees are on a rise (chart 3), and they would add to the overall debt, in a scenario where SPSEs fail to repay. Such a situation can make states’ debts “unsustainable”, notes a recent working paper by the Reserve Bank of India (RBI). The economic fallout of Covid has made this scenario more likely.

Debt levels in many states are already way above the recommended 20 per cent of GDP mark (chart 4). The apparent sustainability at the aggregate level masks unsustainable debt at the state level. 

States have managed to ease debt levels in the past: Odisha is a case in point (chart 5). Yet, Indian states put together are heavily indebted in comparison to peers (chart 6).

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines                                             Compiled by BS Research Bureau