Repayment of market borrowing by state governments is likely to show an 11-fold increase over the next 10 years. The Reserve Bank of India study 'State Finances: A Study of Budgets of 2001-02' reports that the repayment obligation of the all states taken together which is Rs 1,446 crore for the current financial year, will be Rs 15,870 crore in 2010-11.
Net market borrowing by state governments increased by 3.8 per cent in the 2000-01 to Rs 12,880 crore. According to the budgeted figure of all the governments, in the current financial year, the net market borrowing is pegged slightly lower at Rs 12,857 crore. Till December 28, 2001, 80.9 per cent of this programme is completed. The weighted average interest rates of market borrowings done by the governments fell from 11.89 per cent in 1999-2000 to 10.99 per cent in 2000-01. In the current fiscal, thus far, the weighted average of the market borrowing was at 9.79 per cent.
The RBI said: "The declining weighted average interest rate on market borrowings by the state governments has some positive implications on the states' servicing cost of their market borrowings" The central bank, however, expressed its concern over the growing redemption pressure over the years.
As a part of the policy to move towards the system of auctioning of state loan, since 1999 state governments were allowed to raise 5 per cent to 35 per cent of the allocated borrowings through auctions with flexibility of deciding the time. In 2000-01, the states raised Rs 1,670 crore via this route at a cut-off interest rates ranging between 11.57 per cent to 11.80 per cent. The rest part of the market borrowing was done by the pre-announced auction.
