Home Borrower State governments postponed borrowing space from FY21 to ease budget constraints in FY22: ICRA

State governments postponed borrowing space from FY21 to ease budget constraints in FY22: ICRA

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ICRA estimates that 20 state governments have substantial unspent aggregate borrowings of Rs. 2.6 trillion for fiscal year 2021, which have been carried over to fiscal year 2022. For the current fiscal year, over the normal ceiling of Net borrowing (NBC) of 4.0% of the gross domestic product of the state (GSDP) set by the Government of India (GoI) for the 28 state governments (Rs. 8.5 trillion), 3.5% of The GSDP can be considered unconditional.

The authorization for the remaining 0.5% of the GSDP (Rs. 1.1 trillion) was earmarked by the GoI for additional capital spending by state governments in fiscal year 2022, making it effectively conditional in nature. The size of the FY2021 unused loan as a proportion of the FY2022 GSDP exceeds 0.5% of the GSDP for 15 states, reducing their likely dependence on the conditional borrowing by 0.5% of the GSDP.

According to Ms. Aditi Nayar, Chief Economist, ICRA Ltd: “The Indian government had authorized state governments to carry over their unused market borrowing for FY2021 to FY2022, which they can use to fund part of their budget deficits for the current year. . The size of unused FY2021 borrowings as a proportion of FY2022 GSDP (estimated by states) exceeds 0.5% of GSDP for 15 states, reducing their likely dependence on borrowing authority by 0, 5% of the GSDP, which is effectively conditional on its use towards additional capital expenditure. This will help states that are facing a larger revenue shortfall in FY2022 but are unable to increase their capital spending to the required magnitude of 0.5% of MSRP. We expect that some states will choose to use their deferred borrowing instead of the 0.5% conditional borrowing of the GSDP, not in addition to the latter. “

ICRA estimates at Rs. $ 10.6 trillion for fiscal year 2021. Provisional accounts released so far by the Comptroller and Audit General of India (CAG) for 25 state governments and revised estimates for fiscal year 2021 the three remaining states show a combined budget deficit of Rs. 8,100 billion for that year. Based on individual funding envelopes and budget deficits for FY2021, ICRA estimates that 20 states have unused borrowing space that is carried over to FY2022, for a total of Rs. 2.6 trillion.

However, the size of unused FY2021 borrowings as a percentage of FY2022 GSDP (estimated by 26 states in their budgets and estimated by ICRA for two states) varies greatly from state to state. . It exceeds 0.5% of GSDP for 15 states, namely Arunachal Pradesh, Chhattisgarh, Goa, Gujarat, Haryana, Himachal Pradesh, Kerala, Karnataka, Punjab, Maharashtra, Odisha, Tripura, Uttar Pradesh, Uttarakhand and West Bengal. Bihar, Jharkhand, Madhya Pradesh, Telangana and Tamil Nadu’s unused FY2021 borrowing is less than 0.5% of GSDP for FY2022, leaving them with limited flexibility to absorb a shock over fiscal year 2022. The rating agency estimates that the remaining states, namely Andhra Pradesh, Assam, Rajasthan Manipur, Meghalaya, Mizoram, Nagaland and Sikkim, used the all of their borrowings authorized for fiscal year 2021, during that fiscal year itself and, therefore, have no carry forward from fiscal year 2021 to FY2022.

“The overall budgeted budget deficit of the 28 state governments of 3.4% of the GSDP, is only slightly lower than the unconditional NBC of 3.5% of the GSDP for fiscal year 2022. However, most state governments had presented their budgets for fiscal year 2022 before the emergence of the second wave of Covid-19. The associated restrictions could result in a combination of lower than expected income and MSRP, as well as higher than expected spending, leading to a possible budget deficit, exceeding the budgeted 3.4% of MSRP, similar to the slippage observed over the past year. ‘fiscal year 2021. ”, added Ms. Nayar.

The size of the loans authorized for the 2021 financial year, as well as the deferred part, is effectively linked to the GSDP which had been estimated for the 2021 financial year, on the basis of a formula which could not take into account the economic contraction caused. by the pandemic. If the GSDP for FY2021 is revised downward by the Government of India, it would reduce the size of state government deferred borrowing below the Rs. 2.6 trillion estimated by the ICRA. This could have a negative impact on states in FY2022, which had fully utilized their authorized borrowing in FY2021.

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