HYDERABAD: The Socio-Economic Outlook 2025, tabled in the Assembly, highlighted how open market and off-budget borrowings have severely curtailed the state’s fiscal capacity to deliver essential public services and drive development.
The interest payments-to-state’s own revenue (IP-to-SOR) ratio, a key indicator of fiscal health, worsened from 14.6% in 2014-15 to 18.0% in 2023-24 (Provisional). When factoring in off-budget borrowings, the overall interest burden surged from 15.1% in 2014–15 to 28.2% in 2023–24, signalling persistent pressure on state finances, it said.
“The state’s precarious financial situation is also evidenced by its growing dependence on short-term borrowing,” it said.
It pointed to a significant mismatch between revenue generation and expenditure commitments that led to increased reliance on ways and means advances (WMA) and overdraft facilities from the RBI, a practice that was virtually non-existent in 2014-15. Overdraft utilisation surged from just five days in 2017–18 to 121 days in 2023–24, while Normal WMA usage jumped from 34 days in 2016–17 to 154 days in 2023–24. This growing dependence on short-term borrowing has further inflated the state’s interest payments, worsening its financial strain.
The state’s heavy reliance on RBI’s financial accommodation, coupled with the adjustment of off-budget borrowings in 2021–22 against future borrowings limits and a rising debt servicing burden, severely curtailed its fiscal capacity to provide essential public services and drive development, the report said.
To address this, the state is negotiating with financial institutions to lower borrowing costs and extend the repayment periods. It has also decided to not resort to off-budget borrowings serviced from the Budget.
“These measures will help reduce outstanding debt and ease the debt servicing burden in the short to medium term. Guarantees will only be extended to PSUs with sufficient cash flows to service their debt. In addition to the above measures, the government is actively pursuing strategies to augment its resource base,” the Outlook said.
The government is also exploring new revenue streams, strengthening PSUs, plugging revenue leakages and expanding the tax and non-tax base to improve fiscal stability, it said.
Debt servicing burden surges
The state’s budgeted debt servicing burden has surged from `6,954 crore in 2014–15 to `36,866 crore in 2023–24 (Provisional). When factoring in off-budget borrowings, the burden has worsened from `7,254 crore in 2014–15 to `61,691 crore in 2023–24 (Provisional).
This increase is largely due to SPVs securing government-guaranteed loans from financial institutions at higher interest rates (8.93%–11.50%), significantly exceeding the 7.49% average interest rate for Open Market Borrowings (OMB), it said.