State governments are likely to go for additional borrowings during the remaining two months of this fiscal on account of low inflows from small savings and moderation in tax revenue, credit ratings agency ICRA said.
In a report on debt burden of states released on Monday, ICRA added that borrowings through State Development Loan (SDL) are likely to remain substantial even in 2012—13.
“As compared to a gross SDL of around Rs 1,03,000 crore in 2010—11, the 28 Indian States have already raised SDL of around Rs 1,22,600 crore in 2011—12.
“Given the low anticipated inflow of National Small Savings Fund (NSSF) and the likely moderation in tax revenues in the current fiscal year relative to the Budget Estimate (BE) for 2011—12, it is likely that the States may borrow substantial funds through SDLs in February—March 2012,” the report said.
ICRA’s report is based on samples from six states - Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Punjab and Tamil Nadu. These are the States in which ICRA has rated the debt instruments of a number of government entities.
According to the report, in 2012—13 the anticipated easing of policy rates would result in an easing of bank deposit rates as well as the yields at which fresh SDL are contracted.
This may also result in an upswing in NSSF inflows if the rates of various schemes remain unchanged. However, this will not be enough to reduce the borrowings.
“However, with the planned reduction in the minimum share of states in the net small savings collections to 50 per cent from 80 per cent, the magnitude of funds to be raised by the state governments through SDL is likely to remain significant in 2012—13,” it added.
The report said that though there will be an improvement in various indicators like proportion of debt as percentage of total of revenue receipts, states’ own tax revenues, gross state domestic product (GSDP) and interest payments as a proportion of revenue receipt in the current fiscal, the situation in some states is unlikely to improve much.
“Notwithstanding some improvement in certain leverage indicators, Gujarat and Punjab are likely to remain more indebted than other States in the ICRA sample. Nevertheless, the magnitude of their debt stock at an absolute level is likely to remain smaller than other States, particularly Maharashtra and Andhra Pradesh,” it said.