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Twenty states carried forward unutilised borrowings of 2.6 tn to FY22: Icra

Icra has estimated the permission for market borrowings of the 28 state governments and their loans from the union government at  ₹10.6 trillion for FY21. (Photo: Mint)Premium
Icra has estimated the permission for market borrowings of the 28 state governments and their loans from the union government at 10.6 trillion for FY21. (Photo: Mint)

  • The Union government had permitted state governments to carry forward their unused market borrowings for FY21 to FY22, which the latter can utilise for funding a portion of their fiscal deficits for the current year

MUMBAI: Twenty state governments have aggregate unutilised borrowings of 2.6 trillion for FY21, which have been carried forward to FY22, according to estimates by rating agency Icra.

For the current fiscal, of the normal net borrowing ceiling (NBC) of 4% of gross state domestic product (GSDP) set by the Union government for the 28 state governments (Rs. 8.5 trillion), 3.5% of GSDP may be considered unconditional. The permission for the balance 0.5% of GSDP (Rs. 1.1 trillion) has been earmarked by the government towards incremental capital expenditure by state governments in FY22, making it effectively conditional in nature. The size of unutilised borrowings of FY21 as a proportion of the FY2022 GSDP exceeds 0.5% of GSDP for 15 states, reducing their likely dependence on the conditional borrowing of 0.5% of GSDP, Icra said.

Aditi Nayar, chief economist at Icra Ltd, said the Union government had permitted state governments to carry forward their unused market borrowings for FY21 to FY22, which the latter can utilise for funding a portion of their fiscal deficits for the current year.

“The size of the unutilized borrowing of FY21 as a proportion of the FY22 GSDP (estimated by the states) exceeds 0.5% of GSDP for 15 states, reducing their likely dependence on the borrowing permission of 0.5% of GSDP, which is effectively conditional on its usage towards incremental capex. This will help those states that need to incur a larger revenue deficit in FY22 but are unable to step up their capital spending by the required magnitude of 0.5% of GSDP," said Nayar.

She added that some states may choose to utilise their carry forward borrowings instead of the conditional borrowings of 0.5% of GSDP, not in addition to the latter.

Icra estimates the permission for market borrowings of the 28 state governments and their loans from the union government at 10.6 trillion for FY21. The provisional accounts published so far by the Comptroller and Audit General of India (CAG) for 25 state governments and the Revised Estimates for FY21 of the remaining three states indicate a combined fiscal deficit of 8.1 trillion for that year. Based on the individual financing envelopes and the fiscal deficits for FY21, Icra estimates that 20 states have unutilised borrowing space that is carried forward to FY22, aggregating to Rs2.6 trillion.

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