Coronavirus-Hit States’ Borrowings Soar 51% To Rs 2.97 Lakh Crore So Far In FY21

States stricken by the coronavirus pandemic have borrowed a whopping Rs 2.97 lakh crore so far this financial year, which is 51% more than the corresponding period a year ago.

According to CARE, between April 7 and September 8, 26 states and two Union territories have cumulatively raised Rs 2.97 lakh crore via market borrowings, which is 51% more than the amount they had raised in the corresponding period of 2019-20 when it had stood at Rs 1.97 lakh crore.

However, the massive spike is led by just three states -- Karnataka, which borrowed Rs 23,000 crore, 475% more than last year's Rs 4,000 crore; Maharashtra, which borrowed 200% more at Rs 37,500 crore as against Rs 12,500 crore last year; and Tamil Nadu, which borrowed Rs 46,000 crore or 117% over Rs 21,190 crore of last year.

On the other hand, heavily indebted Uttar Pradesh borrowed 43% less than what it had last fiscal till September 8.

"While Uttar Pradesh's borrowings so far this fiscal has been 43% less than last year, there has been a marked spike in borrowings by Karnataka, Maharashtra and Tamil Nadu so far in the current fiscal year," the report said.

It added that these three states account for 38% of the total incremental borrowings so far this year, which is 12% more than their share a year ago.

The cash-starved states are grappling with rising expenses due to the pandemic. But, the biggest negative surprise came from the Centre, which went back on its commitment to compensate them at 14% for the revenue losses arising from GST.

The Centre estimates that states' GST revenue gap is Rs 3 lakh crore, while cess collections are likely to be around Rs 65,000 crore, leaving a shortfall of Rs 2.35 lakh crore, of which Rs 97,000 crore is due to shortfall in GST. Accordingly, they are given two options -- a special RBI window for Rs 97,000 crore at a reasonable rate of interest with a five-year tenure, or borrowing the entire Rs 2.35 lakh crore gap from the RBI.

On Tuesday, 13 states raised Rs 15,675 crore at the auction of state government securities, which is Rs 1,500 crore more than the notified amount as Haryana and Maharashtra exercised the greenshoe.

While Haryana accepted an additional Rs 500 crore of the 10-year loan, Maharashtra accepted a further Rs 1,000 crore of the 11-year security.

Of the 26 states that have borrowed so far this fiscal, nine have seen their market borrowings increase by 50% over last fiscal, while five of them borrowed 20-41% more and three of them between 4-13%, the CARE report said.

At the same time, eight states UP, Punjab, Manipur, Uttrakhand, Assam, Bihar, Arunachal Pradesh and Himachal Pradesh have so far borrowed less than what they did a year ago.

Adding to the worry, states' borrowing costs have risen to a four-month high now with the weighted average yield of their debt jumping 8 basis points to 6.57% at Tuesday's auctions over last week.