UP govt's market borrowings may reach over Rs 5.5 trillion in FY24

Uttar Pradesh (UP), which is aiming to become a $1 trillion economy by 2027, is estimated to log market borrowings of more than Rs 5.5 trillion in the financial year of 2023-24.
 
Compared to the state’s nominal gross state domestic product (GSDP) of Rs 24.39 trillion, the market borrowings are 22.6 per cent of the GSDP.
 
In 2022-23, UP’s market borrowings stood at over Rs 4.75 trillion, which was 23.2 per cent of the GSDP of Rs 20.48 trillion.States borrow from the market to meet budgetary requirements by floating government securities (G-sec) and bonds of different maturities. Reserve Bank of India (RBI) has the onerous responsibility of regulating borrowings to ensure that financing needs are met at low cost without excessive risk.

 

The G-sec/bonds are issued through a competitive bidding process conducted by the RBI with primary participants, comprising banks, primary dealers, and other financial institutions.
 
Over the years, the market borrowing by UP has been increasing. Although it is expected to dip marginally in 2023-24.
 
According to the UP annual Budget 2023-24, the state government will additionally float power bonds worth Rs 30,385 crore and take loans of Rs 17,345 crore from the financial institutions during the financial year. Moreover, the state is estimated to receive Rs 71,200 crore, which is 2.9 per cent of its GSDP, in loans from the Centre during 2023-24, compared to Rs 51,860 crore (2.5 per cent of GSDP) during the last fiscal year.

 
Meanwhile, UP’s public debt is estimated at Rs 7.84 trillion in 2023-24. Interestingly, the state’s estimated sovereign debt of Rs 7.84 trillion exceeds its annual Budget of Rs 6.90 trillion by Rs 94,000 crore, or nearly 14 per cent. Whereas UP’s public debt has jumped from Rs 7 trillion to Rs 7.84 trillion, yet in percentage terms, it has fallen to 32.1 per cent of the GSDP vis-à-vis 34.2 per cent in revised budgetary estimates for FY23.
 
UP is not among the leading indebted states. The tally is led by Punjab, Rajasthan, Bihar, Kerala and West Bengal. Last year, the RBI had flagged concerns over financial stress in these states.

 
While UP managed to limit public debt below 30 per cent till 2020-21, it hiked to 33.4 per cent and 34.2 percent during 2021-22 and 2022-23, respectively, due to the pandemic characterised by a fall in revenue concurrent with a rise in expenditure.
 
However, the state espouses fiscal responsibility and budget management (FRBM) norms to tame fiscal deficit to Rs 84,883 crore or 3.48 percent of the GSDP.