Data | Five southern states took budgetary loans of Rs 2.34 lakh crore in FY21

Telangana while presenting the budget a week ago Finance Minister T Harish Rao blamed the Centre “Creating obstacles after obstacles” in the development of the state. He said that the state had resorted to extra-budgetary borrowing to complete irrigation projects in minimum time but the Center had imposed borrowing limits. He argued that this cut in the borrowing limit was against the “spirit of federalism”.

Off budget loans They are loans taken by government entities, such as PSUs or special purpose vehicles, to meet their expenditure on behalf of the government. According to the Comptroller and Auditor General of India, these loans are not included while calculating the state governments’ debt and fiscal deficit. However, the state government is responsible for servicing the debt and repaying the debt from its own budget.

Since there is no mention of extra-budgetary borrowing in the budget documents, one has to rely on CAG reports to ascertain the figure. Five southern states – Telangana, Andhra Pradesh, Kerala, Tamil Nadu and Karnataka – accounted for 2.34 lakh crore, about 93 percent, of the total off-budget liabilities of the eleven major states analysed.

As of March 2021, Telangana had the highest burden of such loans followed by Andhra Pradesh. Chart 1 Shows state-wise off-budget borrowings in crores as of March 2021.

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Andhra Pradesh had an off-budget debt of Rs 86,260 crore. The state’s Civil Supply Corporation accounted for 35% of the borrowing, while Andhra Pradesh Power Finance Corporation accounted for 18%. Chart 2 Breaks down the off-budget borrowings taken by state-owned enterprises of Andhra Pradesh. The CAG claims that resorting to additional budgetary resources will lead them into a debt trap.

“Limited deficit ratios related to fiscal rules and rapid non-government transfers have affected the fiscal space of states. [Hence] They approach OBB for financing. [and] … Invent alternative sources of financing. For example, Telangana has resorted to debt maturity restructuring. They deferred the risks of refinancing by resorting to long-term securities. Kerala has resorted to KIFFB (body corporate) to engage OBB for infrastructure financing,” Lekha Chakraborty of NIPFP told The Hindu.

In almost all states, if extra-budgetary debt is included in their declared debt, it may push their debt-to-GSDP ratio further away from state targets. Table 3 Shows four ratios — debt-to-GSDP including off-budget loans, debt-to-GSDP including off-budget loans, off-budget loans to debt, and finally the state target for debt-to-GSDP.

Barring Karnataka, the debt-to-GSDP ratio has already exceeded the target in all states. If extra-budgetary borrowings were also included, it further increased the states’ debt-to-GSDP ratio.

For example, in Andhra Pradesh, outstanding liabilities were 35.3% of GSDP, slightly higher than the state’s target of 35%. But if extra-budgetary borrowing is included, the state’s debt-to-GSDP ratio rises to 44 percent. Karnataka already accounts for off-budget borrowing in its debt calculations, unlike others.

Moreover, guarantees given by states to PSUs and SPVs for loans or borrowing from banks are also witnessing a growing trend. According to data from an RBI paper reviewing state finances, guarantees issued by states as part of GSDP are on an increasing trend in all states except West Bengal. Chart 4 Shows guarantees issued by states as part of GSDP.

Source: State Financial Audit Reports published by CAG.

Also read: Data | How the cess has reduced the share of the states in taxes from the center is explained in chart 5

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