Data | Five Southern States took off-Budget loans worth ₹2.34 lakh crore in FY21

While tabling the Budget a week ago, Telangana Finance Minister T. Harish Rao accused the Centre of “creating hurdles after hurdles” in the development of the State. He said that the State had resorted to off-Budget borrowings to complete irrigation projects in the shortest time but the Centre had imposed borrowing limits. This cut in borrowing limit, he argued, was against the “spirit of federalism”.

Off-Budget borrowings are loans obtained by government entities, such as PSUs or special purpose vehicles, on behalf of the government to finance its expenditure. According to the Comptroller and Auditor General of India, these borrowings are not included while computing the debt and the fiscal deficit of the State governments. However, the State government is responsible for repaying the loan and servicing the debt from its Budget.

As extra-Budgetary borrowings find no mention in the Budget documents, one has to rely on the CAG reports to ascertain the figures. Five Southern States — Telangana, Andhra Pradesh, Kerala, Tamil Nadu and Karnataka — accounted for ₹2.34 lakh crore, around 93%, of the total off-Budget liabilities of eleven major States analysed.

As of March 2021, Telangana had the highest burden of such loans followed by Andhra Pradesh. Chart 1 shows the State-wise off-Budget borrowings by the end of March 2021 in rupees crore.

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Andhra Pradesh had an off-Budget borrowing of ₹86,260 crore. The State’s Civil Supplies Corporation accounted for 35% of the borrowing, while the Andhra Pradesh Power Finance Corporation’s share was 18%. Chart 2 breaks down Andhra Pradesh’s off-Budget borrowing undertaken by government-owned entities. The CAG’s contention is that resorting to extra-budgetary resources will lead them to a debt trap.

“Fiscal rules related threshold deficit ratios and increasingly volatile intergovernmental transfers have affected the fiscal space of States. [Hence] they resort to OBB for financing [and] …innovate alternative sources of financing…. For instance, Telangana has resorted to restructure the debt maturity. They postponed the refinancing risks by resorting to long term securities. Kerala has resorted to KIFFB (corporate entity) to engage in OBB for financing infrastructure,” Lekha Chakraborty of the NIPFP told The Hindu.

In almost all States, if the off-Budget loans were added to their declared debt, it can take their debt-to-GSDP ratio even further away from State targets. Table 3 shows four ratios — debt-to-GSDP excluding off-Budget loans, debt-to-GSDP including off-Budget loans, off-Budget loans-to-debt, and finally State target for debt-to-GSDP.

Barring Karnataka, the debt-to-GSDP ratio exceeded the target in all States already. If off-Budget loans were also factored in, it raised a States’ debt-to-GSDP ratio further.

For instance, in Andhra Pradesh, outstanding liabilities were 35.3% of the GSDP, which was slightly higher than State’s target of 35%. But if the off-Budget borrowings were included, the State’s debt-to-GSDP ratio shot up to 44%. Karnataka already accounts off-Budget borrowing in its debt calculation, unlike the others.

Further, the guarantees given by the States to PSUs and SPVs to raise loans or borrowings from banks have also been witnessing a rising trend. According to the data from an RBI paper that evaluates State finances, the guarantees issued by States as a share of GSDP have been on a rising trend in all the States shown except West Bengal. Chart 4 shows the guarantees issued by States as a share of GSDP.

Source: State Finance Audit Reports published by CAG

Also read: Data | How States’ share in Centre’s taxes declined due to cesses, explained in 5 charts

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