Odisha stays away from borrowing in FY22

Borrowing by Odisha doesn’t figure in the October-December borrowing calendar either.

By Manish M Suvarna & Prasanta Sahu

Higher non-tax revenues from mining activities kept Odisha away from market borrowing through state development loans (SDLs) between April and November, compared to Rs 3,000 crore raised during the same period in FY21. As per the indicative calendar for market borrowing by states and UTs, Odisha was to raise Rs 1,000 crore in H1FY22, but it did not. Borrowing by Odisha doesn’t figure in the October-December borrowing calendar either.

While FY21 saw a big spike in issuance of SDLs as states struggled to meet enhanced expenditure commitments owing to Covid-19 amid a dip in revenues, borrowings by twenty seven states and two union territories so far in the current fiscal remain 12% lower than the Indicative calendar and 16% less than that in the corresponding period of FY21. Lower borrowings could be attributed to their enhanced revenue position relative to the expenditure being undertaken and prompt GST compensation shortfall payments to states by the central government under a back-to-back loan arrangement, along with the normal bi-monthly GST compensation.

Odisha’s non-tax revenue in H1FY22 is mostly from mining and it stood at Rs 20,219 crore, just over 100% of the annual Budget estimate of Rs 20,000 crore for FY22. As against borrowing and other liabilities in the Budget estimate (BE) of Rs 20,465 crore for FY22, the state has repaid debt worth Rs 5,531 crore in H1 of this fiscal.

“Odisha’s non-tax revenue has grown at a very healthy pace all through April to October 2021. Compared to last year, the mining revenue has grown more than 100%. Budgetary commitments are being met. Therefore, there has been no reason to borrow until now,” Odisha’s ruling Biju Janata Dal national spokesperson Amar Patnaik told FE.

Odisha is known for huge mineral reserves such as iron ore, bauxite, manganese and coal. Revenues from mining largely include a windfall from mining auctions and royalties.

With the revival of economic activities, Odisha’s tax revenue has also improved. It collected Rs 29,578 crore or 44% of its FY22 target in H1 compared with 34% of the relevant target in the corresponding period of FY21. “So far, there has been no pressure on budgetary commitments, including capital expenditure,” Patnaik added.

Market participants said that the states and union territories are expected to borrow less in this fiscal due to strong revenue positions after the easing of restrictions imposed due to pandemic. They also expect borrowing through SDL to stay within the borrowing limit and additional borrowing will be off the table for a time being.

Dealers with state-owned banks pegged yields on these papers, especially the yield on 10-year SDL to remain range-bound and hover in the range of 6.93-7%, at least till December. “The expectations of reverse repo hike in December policy, if happens, then we can see adjustments in yields on these papers, otherwise it will remain range-bound,” a dealer with a private bank said.