Kerala to borrow Rs6500 cr in first quarter through SDLs

Rs3000 cr to be raised during April alone

THIRUVANANTHAPURAM: Kerala is embarking on market borrowing to the tune of Rs6500 crore in the first quarter of the new financial year beginning Wednesday (April 1) through auction of state development loans (SDLs).

Of the total Rs6500 crore to be raised during the quarter through SDLs, Rs3000 crore will be raised during the month of April alone. The finance minister Dr Thomas Isaac has already hinted at frontloading of the state’s borrowings in the wake of the severe financial constraints the state has been going through and further exacerbated by the Covid-19 outbreak.

Dr Isaac’s call for raising the state’s borrowing limit from the FRBM-stipulated three per cent of fiscal deficit, has beoome more vociferous as he fears most of the borrowed fund will be exhausted much before the year end in the new context.

Reserve Bank of India (RBI) facilitates the issue of State Development Loans securities in the market. SDL securities are considered as superior to loans mobilised or bonds issued by state government entities. The RBI, as the facilitator to the issue of SDLs, has the power to make repayments to SDLs out of the central government allocation to states.

Historically, a big chunk of Kerala’s funding of its budget deficit, around 60 per cent, has been through SDLs and the price paid by each state would obviously depend on the fiscal strength of each state.

Kerala will be participating in the first round of auction that kick-starts on April 7, to raise Rs1500 crore. Nineteen states have already confirmed participation in this auction, the first in the new financial year.

Haryana would be raising the largest amount, at Rs3500 crore, through the first auction, whereas the total amount to be raised by all participating states has been estimated at Rs26,100 crore.

RBI has stated that the quantum of total market borrowings by the State Governments for the quarter April -June 2020, is expected to be Rs1.27 lakh crore.

The weekly schedule of auctions to be held during the quarter, along with the name of states that have confirmed participation and tentative amounts have already been announced.

States’ dependence on market borrowing to finance their debt has increased significantly following the recommendation of the fourteenth Finance Commission (FC-XIV) to exclude states from the National Small Savings Fund (NSSF) financing facility (barring Delhi, Madhya Pradesh, Kerala and Arunachal Pradesh).

Kerala’s public debt in relation to its GDP at about 30 per cent is viewed as relatively high compared with most states in the country, and this has its bearing on its expenditure too as a substantial portion of its revenue is consumed by interest payment.

The interest payment of Kerala in proportion to revenue however, declined from 15.1 per cent in 2017-18 to 13.8 per cent in 2018-19 and again inched up to 13.9 per cent in 2019-20 as per the budget estimates.


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