Cash-strapped Karnataka raises ₹8,000 cr. loans

The Karnataka government, which has been facing severe shortage of finances following COVID-19 outbreak and subsequent lockdowns since March, has raised seven State Development Loans (SDLs) to the tune of a whopping ₹8,000 crore through the Reserve Bank of India, with tenure ranging from five years to 11 years and interest rates ranging from 7.93% on April 7 to 5.7% on July 14, 2020.

The government raised funds through the RBI in April, May, June and July to overcome the challenging financial conditions. A sharp fall in revenue from all major sources such as Goods and Service Tax, Stamps and Registration, Excise and Motor Vehicles owing to the lockdown forced the government to raise funds through RBI, to reduce fiscal stress.

Cash-strapped Karnataka raises ₹8,000 cr. loans

Fulfil commitments

While the government had to fulfil the commitments of payments of salaries, pensions and other heads of accounts, it also had to ensure availability of funds for purchase of medical equipment, and implementation of farmers’ subsidy schemes, and various subsidised schemes for Below Poverty Lines families.

Low interest rates

In recent auctions, the State governments, including Karnataka, have been able to raise funds at very low interest rates.

In the auction held on July 14, the State government raised funds at much cheaper rates than in April. For instance, Kerala raised its 15-year SDL at 8.96% in April, while Karnataka’s six-year SDL was auctioned at 5.7% on July 14. Interest rates on long, medium and short-term bonds have fallen steeply in recent weeks.

According to RBI figures, Karnataka raised the first two SDLs of ₹1,000 crore each on April 7 for periods of 10 years (7.8% rate of interest) and 11 years (7.93%). The State raised two SDLs (₹1,000 crore each) on May 26, one SDL each on June 9 (₹1,000 crore), June 2 (₹2,000 crore), and July 14 (₹1,000 crore).

Move defended

The government defended the raising of funds through RBI in the form of State Development Loans. An official said: “We have been raising SDLs off and on since April. It’s all within the approved borrowing limit reflected in the State Budget.”

A majority of States have raised more funds through the RBI and, in fact, many have raised more funds than Karnataka, he added.

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Printable version | Sep 21, 2021 4:37:49 PM | https://www.thehindu.com/news/national/karnataka/cash-strapped-karnataka-raises-8000-cr-loans/article32106267.ece

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