Debt-hit States Locked in 'Servicing' War

Maharashtra is the most indebted Indian state, but when it comes to interest payments, it is AP that took pole position.

Published: 22nd April 2016 03:12 AM  |   Last Updated: 22nd April 2016 03:12 AM   |  A+A-

CHENNAI: Maharashtra is the most indebted Indian state, but when it comes to interest payments, it is Andhra Pradesh (AP) that took pole position followed by Telangana.

While AP coughed up a red-hot 127.1% increase in interest payments as on March, 2016 over the previous year, Telangana’s stood at 45%, revealed RBI’s latest ‘State Finances: A Study of Budgets’ report.

Debt-hit States.JPGThough Maharashtra carries with it the highest debt pile at Rs 3,09,330 crore ($49.1 billion) as on April 7, 2016, its debt servicing last fiscal rose 16%. States like UP, West Bengal and Gujarat are some others with high debt burden, but these are the not ones that are repaying the most. Jharkhand saw a rise of 34.3% in debt service, while states like Karnataka, Kerala and Tamil Nadu paid back 15.5%, 15% and 17.2% respectively.

It is often said that borrowing per se is not bad provided it is used for productive purposes. While this may be a desirable goal, there could be deviations for various reasons. The accumulation of debt liabilities, if left uncontrolled, may cause macroeconomic stability issues, noted a 2014 RBI paper. The slowdown in growth momentum has implications for the revenue raising capacity of states, which may also constrain their debt servicing capacity and increase borrowals.

Interestingly, southern states like unified AP, TN, Karnataka and Kerala reduced debt last fiscal than their north and west counterparts. But, Chhattisgarh and Haryana topped the list adding debt by 23% and 18% respectively followed by Bihar, Goa, Jharkhand, MP, Punjab, Rajasthan that saw respective debt rising in double digits. The north-south contrast in debt levels helpd the overall state government debt down by 11.3% from Rs 27,853,40 crore as on March, 2015 to Rs 24,712,60 crore as on April 7, 2016.

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