The states' combined market borrowings as state development loans (SDL) have doubled to Rs 1.7 lakh crore in the first quarter of current financial year (Q1 FY21), due to higher expenditure to fight COVID-19 along with lower tax realisation due to multiple lockdown extensions, according to a ICRA report. The amount was 31.5 per cent higher on a year-on-year (YoY) basis than the Rs. 1.3 lakh crore pegged in the indicative calendar of market borrowing for that quarter by the RBI on March 31, 2020.
The combined State Development Loan (SDL) issuance of all the state governments stood at Rs 0.8 lakh crore in Q1 FY20, the report said.
Among the states, Tamil Nadu topped the list with market borrowing of Rs 28,000 crore in Q1 FY21, followed by Maharashtra (Rs 25,500 crore), Rajasthan (Rs 16,000 crore), Andhra Pradesh (Rs 15,000 crore), Telangana (Rs 12,500 crore), Kerala (Rs 12,400 crore), Bengal (Rs 10,000 crore), Haryana (Rs 9,000 crore), Gujarat (Rs 8,600 crore) and Karnataka (Rs 7,000 crore). Theses states' borrowing accounted for 86.1 per cent of the total issuance in Q1.
As per the report, multiple extensions of the lockdown have widened the gap between the state governments' tax collections from various sources in Q1 FY21 and the expenditure they needed to incur related to COVID-19, as well as other spending such as interest payments, salaries and pensions.
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"This sharp rise in borrowings reflects the shock to the revenues of the state governments given the decline in the consumption of several non-essential goods and services that are expected to have taken place during the lockdown period," ICRA said."ICRA estimates the net SDL issuance in Q1 FY21 to have expanded by a sharp 135.6 per cent to Rs 1.4 lakh crore from Rs 0.6 lakh crore in Q1 FY20," it said.
The rating agency further said while the central government had permitted the phased resumption of economic activity in the country from June 8, 2020, and some available indicators point to a gradual recovery, certain states have reinitiated limited lockdowns after a spike in new infections.
The associated expected revenue loss could have led some state governments to upfront a portion of the additional borrowing permitted by the Centre for FY21, to June 2020, the report said.
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On June 30, the RBI released the indicative calendar of market borrowings by the state governments for the second quarter of the fiscal (Q2 FY21)."This pegs the total market borrowing of state governments and UTs at Rs 1.8 lakh crore in that quarter," it said. The actual combined borrowing was Rs 1.4 lakh crore in second quarter of 2019-20.
According to ICRA'S chief economist Aditi Nayar, the combined market borrowings of the states is set to rise by 53.3 per cent to Rs 3.5 lakh crore in the in the first half of current fiscal, from Rs 2.3 lakh crore in the year-ago period.
"The sharp spike in borrowings reflects the revenue shocks of the states due to the lockdown. We estimate net SDL issuance in Q1 to have expanded by a sharp 135.6 per cent to Rs 1.4 lakh crore from Rs 0.6 lakh crore in Q1 of FY20. This is 19.2 per cent of total unconditional net borrowing limit of Rs 7.4 lakh crore for the current fiscal," Nayar said.
By Chitranjan Kumar with PTI inputs