State government borrowings in Q2 pegged at 9 percent less than previous year

03 Jul , 2021 By : Kanchan Joshi

Mumbai: The Reserve Bank of India (RBI) has pegged market borrowing of 26 state governments and one Union Territory (UT) in Q2 FY22 at Rs1.69 trillion, 9% lower than the total state development loan (SDL) issuances in the same quarter of last fiscal, as per the central bank's indicative calendar on market borrowing.

The combined borrowing indicated by Maharashtra, Tamil Nadu and West Bengal accounts for a third of the total issuance expected in this quarter, said a note by rating agency Icra Ltd.

In Q1 FY22, the gross SDL issuance stood at Rs. 1.44 trillion, about 19% lower than the initially indicated Rs1.78 trillion, despite the widening state-level restrictions amidst the second covid-19 wave, and their associated negative impact on economic activity.

“In our view, the state governments’ cash flow situation in Q1 FY22 was bolstered by three major factors, namely the receipt of additional tax devolution of Rs45,000 crore from the government in late-March, record-high GST inflows of Rs1.4 trillion in April that pertained to activity in the previous month, and receipt of substantial transfers related to the Fifteenth Finance Commission’s recommendations by some states," the rating agency said.

In monthly terms, the gross SDL raised in April was sharply lower than indicated, following which the gap narrowed in May 2021, it said. The situation reversed in June 2021, with the gross SDL issued being 19.6% higher than the indicated amount and Icra Ltd said it may be a reflection of some emerging stress in the states’ revenue collections in June 2021, as the state-level restrictions were widened over the course of May 2021 in an effort to curb the second wave of Covid-19, which curtailed the momentum of economic activity.

“Looking ahead, the pace of unlocking and economic revival in different states from June onwards, may have a critical bearing on the state-wise SDL issuance in Q2 FY22. Moreover, the eventual calendar for raising the Rs. 1.58 trillion back-to-back loans by the union government could result in a change in the states' borrowing schedule in Q2 FY22," it said.

The rating agency said it projects the net SDL issuance in FY22 at Rs. 6.3 trillion, 3.5% lower than Rs. 6.5 trillion in FY21.