STATES SET TO STEP UP BORROWINGS AS REVENUES TAKE A HIT

Aggregate borrowing by states for the first quarter of the financial year is just 15 per cent more than that of last year, but going by the trend for April, it could be much more.

In April, states expect to borrow 60 per cent more than what they had in the same month last year. This is according to the indicative calendar of market borrowings released by the Reserve Bank of India on Wednesday. The states expect to borrow ~55,225 crore from the markets in April, against ~34,472 crore raised last year.

The higher numbers are hardly surprising as almost all states have seen a sharp fall in revenue. As a result, five states have decided to cut the salaries of their employees and pensioners, braving the chance of receiving adverse political criticism over the move. Telangana, which was first to do so, was on the verge of reneging on some bills in March, till the Union finance ministry chipped in with last-minute accommodations, a state government source said.

“We are not surprised at all,” said an analyst with a foreign bank. “The very first borrowing is larger than what the calendar put down as, so one would expect the limits to be exceeded handsomely.”

This means that the RBI’S calendar for the first three months of financial year 202021 (FY21), which shows aggregate borrowing by the state at only ~1.27 trillion, against ~1.10 trillion in the corresponding period last year, will almost certainly be breached.

For the RBI, there is an additional worry. The state loan papers might not get subscribed. In March, four states — Andhra Pradesh, Bihar, Madhya Pradesh and Punjab — could not raise money from the market. These were among the 18 states that planned to raise money from the market on March 23. Keeping the large overhang of state development loan (SDL) papers that would hit the bond markets, it could be a reasonable expectation that quite a few of them will have to offer attractive prices to make any financial institution pick up their papers.

Among the larger states, Uttar Pradesh will not raise any money in this quarter. It is traditionally one of the few states that is cash rich at this time. Last year, too, it hit the market from the second quarter.