The states' combined market borrowings as state development loans have doubled to Rs 1.7 lakh crore during the first quarter of current fiscal, on account of expenditure to fight COVID-19 and lower tax realisation due to multiple lockdown extensions, Icra said in a report.
The various 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, the agency said.
"The combined SDL issuance of all the state governments more than doubled to Rs 1.7 lakh crore in Q1 FY2021 from Rs 0.8 lakh crore in Q1 FY2020 and was a substantial 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," Icra said in its July 2020 update on State Government Finances.
As per the report, 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 is expected to have taken place during the lockdown period.
"Icra estimates the net SDL (state development loans) issuance in Q1 FY2021 to have expanded by a sharp 135.6 per cent to Rs 1.4 lakh crore from Rs 0.6 lakh crore in Q1 FY2020," 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.
On June 30, the RBI released the indicative calendar of market borrowings by the state governments for the second quarter of the fiscal.
"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.
The largest amount was raised by Tamil Nadu (Rs 28,000 crore), 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), accounting for 86.1 per cent of the total issuance in Q1.
It can be noted that Kerala had to pay 8.96 per cent for a 15-year Rs 6,000 crore SDLD in April, sending alarm bells among borrowing states.
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 trillion in Q1 of FY20. This is 19.2 per cent of total unconditional net borrowing limit of Rs 7.4 trillion for the current fiscal," Nayar said.