Tamil Nadu’s market borrowings have touched ₹50,000 crore so far in the fiscal year 2020-21, up 107% from ₹24,190 crore in the comparable period last year.
The lockdown imposed to curb COVID-19 has led to a challenging situation for the States with lower revenue collections on the one hand and increasing expenditure on the other, forcing them to borrow through the issue of bonds, known as State development loans.
Tamil Nadu has been the second highest borrower after Maharashtra, which has raised ₹52,500 crore, according to CARE Ratings. Tamil Nadu is followed by Andhra Pradesh, Karnataka and Rajasthan.
According to the provisional figures of the Comptroller and Auditor General (CAG), Tamil Nadu’s fiscal deficit (the difference between total revenue and expenditure excluding borrowings) was ₹21,833.48 crore in 2020-21 (till July).
The revenue deficit (the difference between the government’s revenue receipts and revenue expenditure) was ₹18,266.54 crore, as of July. A revenue deficit shows the government’s earnings are not adequate to meet its day-to-day operational expenses.
According to Care Ratings, Tamil Nadu has seen its borrowing cost decline to 6.16% so far in October, from 6.19% in September 2020. The average interest rate was 7% in April.
Tamil Nadu also seems to favour raising money through bonds with the tenure ranging from 10 years to 35 years, and has not utilised the short-term funding option through the Reserve Bank of India’s Ways and Means Advances facility. One of the reasons could be that in terms of bonds, the payments are phased out with a longer maturity period.
In the budget for 2020-21, Tamil Nadu pegged its net borrowings at ₹59,209.30 crore.
The Centre has increased the net borrowing limits of the State governments for 2020-21 to 5% of the Gross State Domestic Product (GSDP) from 3%. However, only 0.5% increase is unconditional and the remaining is subject to the fulfilment of certain conditions. The 0.5% leeway will enable Tamil Nadu to borrow an additional ₹9,627 crore.