20 states carrying forward Rs 2.6 trn of debt-money into FY22: Report

Most states are likely to be in better fiscal health this financial year as 20 of them are collectively carrying forward Rs 2.6 lakh crore borrowed in FY21 to this fiscal, says a report.

This also explains why the states have been borrowing less so far this year despite the pandemic-driven revenue crunch and the soaring public expenses towards health and food, as per the Icra Ratings report released on Friday.

Given the pandemic and the resultant financial crunch, the Centre allowed states to borrow up to 5 per cent of their gross state domestic product (GSDP) -- resulting in an aggregate borrowing of Rs 8.5 lakh crore -- in FY21 as they faced massive drop in revenues and higher expenses towards supporting the people hit by the lockdowns.

 

As of August 10, when the state debt was auctioned last, the borrowings by the states so far in FY22 has been 11 per cent less year-on-year and 15 per cent lower than the amounts shown in the indicative auction calendar.

A total of 23 states and Delhi have tapped the market so far and raised Rs 2.18 lakh crore as of August 10, as against Rs 2.45 lakh crore borrowed same time last year.

Icra Ratings' Chief Economist Aditi Nayar said as per its estimates, 20 states have aggregate unutilised borrowings to the tune of Rs 2.6 lakh crore raised in FY2021, and these are being utilised in FY22.

For the current fiscal, of the normal net borrowing ceiling of 4 per cent of GSDP set by the Centre for 28 states at Rs 8.5 trillion, 3.5 per cent of FY22 GSDP is unconditional and the rest 0.5 per cent (Rs 1.1 lakh crore) is contingent on them meeting incremental capital expenditure in FY22.

The size of this unutilised borrowing in FY21 as a proportion of FY22 GSDP exceeds 0.5 per cent of GSDP for 15 states, reducing their likely dependence on the conditional borrowing of 0.5 per cent.

This will help these states that need to incur a larger revenue deficit in FY22 but are unable to step up their capital spending by the required magnitude of 0.5 per cent of GSDP, she said.

However, she was quick to point out that according to the available provisional numbers, their fiscal deficit stood at a low 3.4 per cent in FY21 at Rs 8.1 lakh crore.

According to her, some states may choose to utilise their carry forward borrowings instead of the conditional borrowings of 0.5 per cent.

The total debt of the 28 states in FY21 would be Rs 10.6 lakh crore, of which Rs 8.5 lakh crore were their market borrowings and the rest loans from the Centre.

The provisional accounts published by the Comptroller and Auditor General for 25 states and the revised estimates for FY21 of the remaining three states, show a combined fiscal deficit of Rs 8.1 lakh crore for FY21 or 3.4 per cent of GSDP.

"The aggregate budgeted fiscal deficit of the 28 states of 3.4 per cent, is only marginally lower than the unconditional borrowing of 3.5 per cent for FY22.

"However, most states presented their FY22 budgets prior to the second wave and the associated restrictions resulted in a combination of lower-than-projected revenue and GSDP, as well as higher-than-forecast expenditure, leading to the eventual higher fiscal deficit, exceeding the budgeted 3.4 per cent, similar to the slippage seen in FY21,' said Nayar.

The size of the permitted borrowings for FY21, as well as the carried forward portion, is effectively linked to FY21 GSDP estimate, based on a formula that could not account for the economic shrinkage caused by the pandemic.

However, she admitted that if the FY21 GSDP is revised downwards, it would compress the size of the carried forward borrowings below Rs 2.6 lakh crore estimated by the agency and could negatively impact those states which had fully utilised their borrowings in FY21.