HYDERABAD: State Finance Minister T Harish Rao, who will soon be presenting the 2022-23 Budget, has received a “booster dose” in the form a positive report from Reserve Bank of India (RBI) on Telangana’s fiscal performance and market development.
According to a study paper released by the RBI on Friday, Telangana’s debt-to-GSDP ratio is the lowest in the country. The study, which was based on the annual data for the period between 2014-15 and 2018-19, says that the State Performance Composite Index (SPCI) -- which measures both the fiscal performance and market development of States -- of Telangana, has also improved.
With the findings of the study, one can conclude that Telangana’s finances are in the pink of health. Telangana, which has been managing its debts very well, is better positioned than several other big States in winning the investor’s confidence.
The average debt to Gross State Domestic Product (GSDP) of Telangana from 2014-15 to 2018-19 was 16.1 per cent, which is the lowest among the States in the country. “The state-wise position shows that the debt-GSDP ratio, on average, ranged from a low of 16.1 per cent for Telangana to a high of 48.7 per cent for Jammu and Kashmir,” according to a working paper of the RBI. The low debt to GSDP ratio indicates the fiscal health of the State.
The RBI’s working paper “States’ Fiscal Performance and Yield Spreads on Market Borrowings in India”, stated that weighted average yield spreads of State Development Loans (SDLs) over Central government securities during 2018-19 is less than 40 basis points for Telangana, which was again lowest in the country during 2018-19. It means that the cost of borrowing for TS is low.
Telangana also performs well in the Expenditure Quality of Indian States, as the State’s spendings on capital outlay is good apart from the committed expenditure. Investors could have a low preference for States with high committed expenditure and may demand higher yield spreads.
Telangana has been able to retain the confidence of the investors, while raising SDLs. “It may be worthwhile to mention that the State governments used to issue bonds up to 10-year maturity initially. However, with the development of the market for SDLs and a more active approach adopted by the States to manage maturity profiles of their debt, governments of some States started issuing securities with longer tenures since 2015-16. The Telangana government has issued securities of 30 years maturity,” the working paper stated.
The State’s percentage of Own Revenue Generation in Total Revenue Receipts is also good, according to the paper. Telangana also improved States’ Performance Composite Index. “States like Karnataka and Gujarat have a relatively higher SPCI during the entire sample period while the States like Haryana and Telangana improved their SPCI signific-antly over the period from 2014-15 to 2018-19,” the paper stated.
During the study period from 2014-15 to 2018-19, Telangana was at the ninth place in raising market loans. Tamil Nadu, Uttar Pradesh, Maharashtra, West Bengal, Karnataka, Andhra Pradesh, Gujarat and Rajasthan were in the top eight places respectively and raised more loans than Telangana, the paper noted.
The study serves two major objectives: first to enable the states to understand their relative fiscal performance based on the indices and to work on improvement. Second, based on the index, the investor can make better-informed decisions on their investment in SDLs, the report said.