As tax revenues fall, south states increase borrowings

Tamil Nadu, Karnataka, Andhra Pradesh, Telangana and Kerala have together raised over 1.2 lakh crore, and along with Maharashtra, Rajasthan, West Bengal, Gujarat, and Haryana have emerged as the largest borrowers so far, accounting for 83% of the ...

Agencies
The increased market borrowings are well within the permitted annual limits under the Fiscal Responsibility and Budget Management Act, they said.
South Indian states have raised cheaper and longer-term debt during the first five months of the ongoing fiscal year amid a sharp fall in tax revenue due to the Covid-19 pandemic and the resultant economic crisis, and are using the funds to meet their rising health care expenses.

Tamil Nadu, Karnataka, Andhra Pradesh, Telangana and Kerala have together raised over 1.2 lakh crore, and along with Maharashtra, Rajasthan, West Bengal, Gujarat, and Haryana have emerged as the largest borrowers so far, accounting for 83% of the total state government borrowings of 2.7 lakh crore. The states have gained significantly from the prevailing low interest rates and longer loan tenures of 30-35 years. They have also managed to tap the debt markets much before borrowings by the central government and corporates harden rates and affect market appetite.

The increased market borrowings are well within the permitted annual limits under the Fiscal Responsibility and Budget Management Act, they said. According to the latest Reserve Bank of India data, Tamil Nadu mobilised 44,750 crore during April-August, an increase of 128% over 19,615 crore in the same period last year. Karnataka’s borrowings surged 375% to 19,000 crore, from 4,000 crore a year ago, the highest in percentage terms.


Andhra Pradesh raised 24,250 crore (51% growth over 16,078 crore), Telangana 18,461 crore (44% increase on 12,800 crore), while Kerala secured 13,930 crore (up 19% over 11,682 crore). The weighted average interest rate of these dated securities across tenures stood at 6.19%, according to RBI data. Tamil Nadu finance secretary S Krishnan said the longer tenures help in sufficient time for repayment.

“If you look at TN’s borrowing, you will see an interesting breakup there. We have done some unconventional things. We have borrowed longer term, almost one-third is 30-year or 35-year loans. We usually don’t go for such long-term loans because we do not know what the market appetite is,” he said. The market indication this time around was that there was an appetite for long-term borrowings from insurance majors and pension funds, he added.

Justifying the timing of the market borrowings, Krishnan said: “Later in the year, the government of India will also get in and will have a much bigger borrowing programme this year. Corporates and others may start borrowing once the economy stabilises. So, interest rates may harden. The idea was to contract as much borrowing as possible when the interest rates are soft.”
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In Karnataka, commercial taxes, which account for a lion’s share of revenues, was down to 30% in April, and reached 94% of pre-Covid-19 levels only in July, senior finance department officials said. Taxes on liquor have been a saviour thanks to over the counter sales, but there is little pick-up in revenues from the stamps and registration, and transport segments. Home Minister Basavaraj Bommai, who represents Karnataka on the GST Council, said the government took belt-tightening measures from the initial days of the outbreak.

“Because of these timely initiatives by the finance department, the government could manage without cutting salaries of government employees, even as a few other states did. We are trying to enforce financial discipline in the administration. The relief, though, is that revenues have begun to pick up,” he told ET.

Telangana floated bonds at lower rates and longer tenures, which were subscribed many times over, said state planning commission vice-chairman Boinapally Vinod Kumar, adding that the proceeds were used for capital expenditure and welfare schemes.

“Telangana government has ensured that the entire agriculture crop was directly procured from the farmers during the Covid-19 lockdown, which acted as a major stimulus to the rural economy,” Kumar told ET. “The state also continued with large capital expenditure programmes like large multi-purpose irrigation projects that helped insulate the core sector, including the steel and cement sectors from the adverse effects of the lockdown,” he added.
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Neighbouring Andhra Pradesh’s tax revenues fell by nearly a third during the last five months, prompting it to look for borrowings to fill the shortfall, finance minister Buggana Rajendranath Reddy said. “Most of the proceeds of borrowings are going towards expenditure for welfare of the common man,” he said, adding that although there is an improvement in tax revenues, the state may end up with a shortfall by the end of the financial year.
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