The Tamil Nadu government has indicated that it will borrow ₹25,800 crore in Q4 (January-March) of the financial year 2021-22 by auctioning bonds, called State Development Loans, according to the Reserve Bank of India’s borrowing calendar. This is marginally higher than the about ₹25,000 crore borrowed during the same period last year.
From April to December 2021, the State had borrowed ₹52,000 crore, slightly higher than the ₹51,950 crore indicated for the period. However, it was 17% lower than ₹63,000 crore borrowed during April-December 2020.
The State Development Loans are the major source of borrowing for the States to fund their fiscal deficit that arises when total expenditure exceeds total revenue.
A senior State government official said Tamil Nadu’s borrowing plan was in line with what had been indicated in the revised budget estimate for 2021-22.
Excluding the GST compensation of ₹8,095 crore received as back-to-back loan, Tamil Nadu’s fiscal deficit is estimated to be ₹92,529.43 crore in 2021-22, which is 4.33% of the Gross State Domestic Product (GSDP). Accepting the 15th Finance Commission’s recommendations, the Union government has allowed the States to borrow up to 4% of the GSDP for 2021-22, with an additional 0.5% limit for those undertaking critical power sector reforms. And one of the reforms is the introduction of direct benefit transfer to all farmers.
In his Budget speech, Tamil Nadu Finance Minister Palanivel Thiaga Rajan had said the State was confident of availing itself of 0.35% of the additional 0.5% of the GSDP allowed, without compromising on the State’s core principle of maintaining free electricity supply to the farm sector.
So far in the financial year 2021-22, the State’s revenue has improved, but expenditure has remained higher. The total revenue receipts stood at ₹1,18,992.48 crore in April-November 2021, up 22% from last year, while the total expenditure was ₹1,49,044.19 crore. This has resulted in a fiscal deficit of ₹30,051.71 crore as in November 2021. Revenue deficit (which implies revenue expenditure is higher than revenue receipts) stood at about ₹7,869.87 crore.
According to the RBI, the quantum of total market borrowings by the States and the Union Territories for January-March 2022 is expected to be ₹3,09,971.74 crore.
According to ratings agency ICRA, States such as Karnataka and Maharashtra have indicated substantially higher borrowings in Q4, 2022. This may be due to the concerns that the GST compensation would be discontinued beyond June 2022 and the apprehension that the borrowing ceiling would be reduced in 2023.
The Tamil Nadu government has urged the Union government to continue the GST compensation at least till June 30, 2024, arguing that its revenue is yet to recover from the blow dealt by the COVID-19 pandemic. At a pre-budget meeting with Union Finance Minister Nirmala Sitharaman, Mr. Rajan had urged the Centre to allow borrowing of 5% of the GSDP for the financial year 2022-23, without any condition. His point was that the States had incurred a huge expenditure to fight COVID-19 and suffered a substantial reduction in revenue.
Any severe impact of the third wave of the pandemic would further stress Tamil Nadu’s finances.