Report: State Borrowing Falls Sharply, Eight states raised Rs.15,900 crore

Eight states raised Rs.15,900 crore from auctioning their state government securities or debts at a coupon of 7.42%, 6 basis points (bps) less than the last auction. ICRA Ratings stated in a note that the debt raising of Rs.15,900 crore was around 45% lower than the indicated amount in the auction calendar for the week.

The weighted average cut-off dipped to 7.42% in the auction despite the increase in the weighted average tenor from 11 years to 14 years, down from 7.48% in the auction last week, followed by softening the yield of Government Securities (G-Secs) across tenors. As a result, the spread between the new 10-year G-Sec yield and the cut-off of 10-year state government securities eased mildly to 29 bps from 30 bps last week.

In the last couple of years, state borrowings have fallen short of the indicative calendars the Reserve Bank of India (RBI) provided. States borrowed around Rs.7.58 lakh crore in the previous fiscal in gross terms. Though it was higher than the Rs.7.02 lakh crore for 2021-22, it was lower than the provisional target.

The Central Government has been reducing the cap on borrowings by state governments in line with the Finance Commission recommendations. Though it was eased to 5% in 2021-22 to help states cope with pandemic and economic ramifications, the ceiling, including those to undertake reforms in the power sector, has been capped at 3.5% of states’ gross domestic production in the current financial year, lower than the 4% cap for 2022-23.

According to the State Bank of India’s (SBI) economic research department report released in March, the state’s gross market borrowings in 2023-24 are estimated at Rs.8.2 lakh crore. The report further stated that states’ cost of borrowing was seriously dependent on the Goods and Services Tax (GST) compensation from the Central Government.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in