NEW DELHI: The Reserve Bank of India (RBI) on Friday pegged the total market borrowing of state governments and Union territories in Q2 FY22 at Rs 1.92 lakh crore, 3% higher than the total State Development Loan (SDL) issuance of Rs 1.86 lakh crore in Q2 of last year.
Cash-strapped states such as Maharashtra, West Bengal, Uttar Pradesh and Tamil Nadu are expected to resort to higher market borrowings during July-September quarter of the current financial year as the second wave of the pandemic wreaks havoc on their finances. These four states are projected to cumulatively raise nearly 40 per cent of the total issuance, according to the central bank data.
The indicative calendar of market borrowings for Q2 FY22 released by the RBI on July 1, 2021, had pegged the states’ market borrowing at Rs 1.69 lakh crore. However, the figures have been revised to add Uttar Pradesh with respect to their proposed borrowing in the current quarter.
In Q1 FY22, the gross SDL issuance stood at Rs 1.44 lakh crore, only 81% of the initially indicated Rs 1.78 lakh despite the widening state-level restrictions amidst the second covid-19 wave, and their associated negative impact on economic activity. During the same quarter of the Covid-19 hit 2020-2021, a total of twenty states and one Union territory had cumulatively raised Rs 1.67 lakh crore. Analysts say that the lower quantum of market borrowing in Q1 FY22 could largely be ascribed to the lower expenditure undertaken by the states relative to their income.
“In our view, the state governments’ cash flow situation in Q1 was bolstered by three major factors, namely the receipt of additional tax devolution of Rs 45,000 crore from the government in late-March, record-high GST inflows of Rs 1.4 lakh crore 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,” according to ratings firm Icra.
SBI chief economic adviser Soumya Kanti Ghosh says, incremental reforms by states in power and local bodies could potentially add at least Rs 72,000 crore to states’ kitty in FY22.