Kerala soft-pedalling borrowing on hopes of larger Central devolution?

By CL Jose

Sidesteps April 11 borrowing of Rs1000 cr

THIRUVANANTHAPURAM/May 05-2022: Kerala may elect to kick the proverbial ‘market borrowings’ can further down the road on hopes of increased tax devolution from the Centre in the current financial year.

As in the early quarters of last financial year, the state looks soft-pedalling borrowing this time too; it is yet to open borrowing during this (financial) year despite having announced an indicative quarterly borrowing of Rs9000 crore, with Rs1000 crore being earmarked for April 11.

Talking to this business news portal, a financial analyst said the state may be too eager to rid the perception that Kerala is an ‘over-leveraged’ state.

The most disparaging charge against the government has been that the state doesn’t have any qualms about living on borrowed funds and its debt-GDP ratio at about 37 per cent is unsustainable, and is one of the most precarious among all states.

The former finance minister, Dr Thomas Isaac, an expert on public finance, has always been an avid propoent of borrowing for the sake of growth, and he has assidously  stood for his conviction on this.

As per the tentative auction calendar for the first quarter of the current year, Kerala would have borrowed Rs1,000 crore on April 11, Rs5,000 crore during May and the remaining Rs3,000 crore in June.

Informed sources told that after having given a miss to the April 11 borrowing plan, Kerala is unlikely to catch up with the Rs5000 crore borrowing scheduled for the month of May.

Having said that, a certain section in the know of things believes the KSRTC salary imbroglio and other financial compulsions currently staring at the state could force the Finance Department to change its mind and let go of the rope.

However, the trend is not confined to Kerala alone, rather most states barring Andhra Pradesh, Punjab Haryana, are yet to open their borrowing account this fiscal.

The fiscal deficit of the states is met through borrowings and the lion’s share of the states’ borrowing are raised through market borrowings through the issue of bonds called State Development Loans (SDLs).

During Apr1-May 2 period, FY2023, Andhra Pradesh raised Rs44 billion) Maharashtra (Rs40 billion), Punjab (Rs25 billion) and Haryana borrowed Rs15 billion through the issue of SDLs.

Together, they borrowed Rs124billion – 82 per cent lower than the Rs672 billion that as many as 19 states had initially indicated for this period.

Wide gap

The leading rating agency ICRA has estimated that the gap between the indicated and the actual SDLs issuance widened to a substantial 82 per cent or Rs0.5 trillion (Rs50,000 crore) in the first five weeks of Q1 FY 2023 alone.

ICRA says this is likely to have been led by a comfortable cash-flow position of the states following the highly back-ended release of the central tax devolution last year (FY 2022), with nearly half the funds being released in Q4 FY 2022.

In the case of Kerala, though the state borrowed Rs27,000 crore from the market last financial year, a big chunk of this, Rs7,000 crore, was raised during the last quarter alone,

“We expect tax devolution in FY 2023 to exceed the amount included in the FY 2023 Budget Estimate (BE) by Rs1.1 trillion (Rs1,10,000 crore), which could curtail the actual SDL issuance in the remainder of this fiscal,” ICRA has stated.

The rating agency estimates that FY2023 gross SDL issuance by all states put together would be at Rs8.4 trillion (Rs8,40,000 crore).

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