Centre, states unlikely to borrow more this year as fiscal deficits fall

MUMBAI: The Indian economy will continue to be characterised by buoyant tax payments and lower government borrowings in 2007 too.

According to a report jointly released by Standard and Poor���s (S&P) and Crisil, despite a very high stock of debt, both local and state governments in India will see a reduction in borrowing for the second consecutive year.

Debt issuance by state governments is estimated to decline to about $18 billion from $26 billion in 2006, said S&P���s credit analyst Sani Hamid. This could be attributed to reduced revenue deficits and curtailment of capital expenditure, causing lower
fiscal deficits.

The report noted that the domestic debt market is largely dominated by central government issuances, closely followed by issuances by state governments and corporates.

While securities issued by the Centre are already on an auction basis, sale of state government securities is in the process of moving from the tap mode to an auction basis.

The report observed that state issuances have been impacted by the recommendations of the Twelfth Finance Commission, including the elimination of central loans under the State Plan, greater flexibility for states to decide on the proportion of market borrowings and central government loans, and disintermediation in market borrowings.

It was earlier stated at a forum that state governments currently enjoying a surplus revenue position, may soon be able to purchase securities which they had issued through auctions earlier. The Reserve Bank of India is considering a proposal to allow these states to buy back such securities and is in talks with a varied set of players for this purpose.

States such as Orissa, Karnataka, Kerala, Himachal Pradesh, West Bengal, Bihar, Tamil Nadu, Haryana, etc. currently show a surplus in their revenue deficit. RBI is also in talks with the Centre to initiate a scheme to boost the bond market for central government issuances.