An Indian man displays new 2000 rupee notes outside the Reserve Bank of India (RBI) in Mumbai on November 10, 2016.
Long queues formed outside banks in India as they reopened for the first time since the government's shock decision to withdraw the two largest denomination notes from circulation. / AFP PHOTO / PUNIT PARANJPE
An Indian man displays new 2000 rupee notes outside the Reserve Bank of India (RBI) in Mumbai on November 10, 2016. Long queues formed outside banks in India as they reopened for the first time since the government's shock decision to withdraw the two largest denomination notes from circulation. / AFP PHOTO / PUNIT PARANJPE

The states, reeling from massive revenue losses due to coronavirus lockdowns, have front-loaded their borrowings by a whopping 76 per cent so far this fiscal to Rs 1.93 lakh crore, says a report.

Front-loading of market loans has been on the back of the Centre relaxing the ways and means advances norms to manage cash-flow mismatches due to the pandemic, says a report by Care Ratings.

In addition, the Centre has also relaxed the fiscal deficit target from 3 to 5 per cent.

"Between April 1 and July 14, the states' market borrowings have jumped to Rs 1.93 lakh crore, which is 76 per cent higher than the corresponding period last fiscal year," says the report.

The aggressive borrowings will further shoot up the outstanding debt of all the states which has more than doubled to Rs 52.6 lakh crore in FY20, growing at an annual rate of 14.3 per cent between FY15 and FY20, notes the report.

The outstanding debt has almost doubled in the last five years to Rs 52.6 lakh crore and the annual spike rate is much faster than the Centre's outstanding internal debt which clipped at 10 per cent during the same period.

Outstanding debt of the states includes market borrowings, power sector-specific Ujwal DISCOM Assurance Yojana (UDAY) bonds, funds borrowed from the National Social Security Fund, banks, and other financial institutions, ways and means advances, loans from the Centre, provident funds, reserve funds and other contingency funds.

The ratio of states' outstanding debt to total internal debt, which is the combined debt of the Centre and the states has increased from 30.9 per cent in FY15 to 35.1 per cent in FY20, says the agency's chief economist Madan Sabnavis.

States are facing a dual challenge of addressing the current health crisis and simultaneously managing their finances amidst the pandemic as the nationwide lockdowns and the extended state-level lockdowns have adversely impacted their revenues, he said without quantifying how much is the revenue loss.

"The cumulative effect of this is likely to increase the overall outstanding debt of all the states which stood at Rs 52.6 lakh crore in FY20," he warned.

There was a steep double-digit growth of 19 per cent in FY16 followed by 18.4 per cent in FY17 and this can be ascribed to funds raised by a few states through the UDAY bonds, which was applicable during FY16 and FY17, along with the aggressive borrowing to the tune of over 40 per cent from banks and financial institutions, according to the agency.

That apart they also borrowed 20 per cent more from the markets in FY16 and FY17, it said.

However, better revenue collection in FY18 and FY19 helped the states arrest the growth in their outstanding debt to 12.7 per cent and 9.8 per cent respectively but again picked up speed to 11.5 per cent in FY20, as they borrowed more from the Centre and markets, the report said.

Of the total debt, as much as 72 per cent is with the top 10 states. The list is led by Uttar Pradesh with an outstanding debt of Rs 6 lakh crore in FY20, accounting for 11 per cent of total debt of all the states, it said.

At the second slot is Maharashtra with an outstanding debt of Rs 5 lakh crore, accounting for 10 per cent of total debt of all states, followed by Bengal, Tamil Nadu, Rajasthan, Andhra, Gujarat, Karnataka, Kerala and MP.

However, despite having a high debt burden, Maharashtra, Tamil Nadu, Gujarat and Karnataka have a debt to GSDP ratio of under 25 per cent for the past many years, as stipulated by the 14th Finance Commission. On the other hand, UP, Bengal, Rajasthan, Andhra, and Kerala have high debt levels and also the debt-GSDP ratio above the stipulated norms, the report said.

In case of MP, the debt to GSDP ratio was below 25 per cent until FY19 but has slightly exceeded the 25 per cent target in FY20, the agency said.

As many as 18 states have a debt-GSDP ratio of over 25, and of them 12 have it over 30, it said.

While Punjab, ranking 11th in terms of absolute debt, ranks first when it comes to the debt-GSDP ratio at 38.5, while Andhra, Bengal and Rajasthan have it above 30 and Gujarat, Maharashtra, Odisha, Karnataka, Assam and Delhi and Puducherry have it below 20, the report said.

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