Tamil Nadu’s market borrowings thus far in the 2020-21 fiscal (April 7-August 4) have doubled to ₹37,500 crore from ₹16,615 crore during the comparable period last fiscal.

“State governments have increasingly been raising funds through the issuance of State Development Loans (bonds) in the current fiscal to tide over the revenue shortfall due to the COVID-19 lockdown in place since late March. There has been a notable increase in borrowings across States in the current fiscal when compared to 2019-20,” said CARE Ratings, a credit rating agency.

Twenty-five States and a Union Territory have cumulatively raised ₹2.28 lakh crore during the current fiscal, with Tamil Nadu and Maharashtra emerging as the biggest borrowers, accounting for 30% of the total, it added.

“States, including Tamil Nadu, are facing a situation of lower revenue receipts and an increase in expenditure on health and social security amid the pandemic,” Jayanta Roy, senior vice-president and group head, Icra Ratings, said.

“Another major challenge is that the States are going to receive less devolution from the Centre amid a falling revenue situation, and there is also uncertainty over GST compensation,” he added.

Revenue deficit

“Tamil Nadu has been facing a revenue deficit situation over the years. Ultimately, it has to cut or defer capital expenditure [spending on projects like infrastructure] to remain within the fiscal deficit/borrowing threshold for FY2021,” Mr. Roy said.

The Centre has increased the net borrowing limit of the State governments for FY2020-21 from 3% of the Gross State Domestic Product (GSDP) to 5%.

However, only a 0.5% increase is unconditional, and the rest is subject to the fulfilment of certain conditions.

Tamil Nadu’s fiscal deficit could touch ₹85,000 crore this year due to the pandemic if the existing trend of revenue shortfall continues, Chief Minister Edappadi K. Palaniswami had said recently.

The State Budget had projected a fiscal deficit of ₹59,346.29 crore for 2020-21. The State would sustain a revenue shortfall of around ₹12,000-₹13,000 crore a month, as per the Finance Secretary’s projections, the Chief Minister had said.

Tamil Nadu has been raising money through the issuance of both short-term and long-term bonds, with 33% of its borrowings having a tenure of two to five years and 28% having a maturity period of 30 to 35 years, according to CARE Ratings.