ICRA Ratings in its latest report has said that most states are likely to be in better fiscal health this financial year as 20 of them are collectively carrying forward Rs 2.6 lakh crore borrowed in FY21 to this fiscal. It said this also explains why the states have been borrowing less so far this year despite the pandemic-driven revenue crunch and the soaring public expenses towards health and food.
According to the report, given the pandemic and the resultant financial crunch, the Centre allowed states to borrow up to 5 per cent of their gross state domestic product (GSDP) -- resulting in an aggregate borrowing of Rs 8.5 lakh crore -- in FY21 as they faced massive drop in revenues and higher expenses towards supporting the people hit by the lockdowns. It also noted that as of August 10, when the state debt was auctioned last, the borrowings by the states so far in FY22 has been 11 per cent less year-on-year and 15 per cent lower than the amounts shown in the indicative auction calendar.
The report further said for the current fiscal, of the normal net borrowing ceiling of 4 per cent of GSDP set by the Centre for 28 states at Rs 8.5 trillion, 3.5 per cent of FY22 GSDP is unconditional and the rest 0.5 per cent (Rs 1.1 lakh crore) is contingent on them meeting incremental capital expenditure in FY22. It pointed out that the size of this unutilised borrowing in FY21 as a proportion of FY22 GSDP exceeds 0.5 per cent of GSDP for 15 states, reducing their likely dependence on the conditional borrowing of 0.5 per cent. It added that this will help these 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 per cent of GSDP.