States to borrow Rs 1 lakh cr from markets in Q4

In FY09, the central government's gross borrowing was at Rs 3,18,500 crore, while net borrowing was Rs 2,98,536 crore

State governments will be borrowing between Rs 95,000 crore and Rs 1.05 lakh crore in the March quarter, the Reserve Bank of India said on Wednesday.

This is much bigger than what the market was expecting and will push up the yields for state development loans, or bonds issued by the state governments. The market was expecting not more than Rs 75,000 crore of borrowing from the states.

So far, state governments have borrowed about Rs 1.9 lakh crore from the market. With the latest borrowing numbers, the total borrowing pushes up close to Rs 3 lakh crore, which is what the central government used to borrow for the full year some five-six years back.

For example, in financial year 2008-09, the central government's gross borrowing was at Rs 3,18,500 crore, while net borrowing was Rs 2,98,536 crore.

The high borrowing may have come because the central government is constrained by its fiscal deficit math, expected to be pegged at 3.9 per cent of the gross domestic product (GDP). By keeping its expenditure tight and prompting the state governments to spend, the government can maintain a balance taking advantage of the available space in state budgets, said Soumyajit Niyogi, rates analyst at SBI DFHI Ltd.

The central government has to account for the rise in pension liabilities to army personnel and also make provisions for more pay to its own employees. At the same time, the government has to maintain its fiscal deficit consolidation path, which seems difficult.

"Government will need to reassess its commitment to cut the deficit further by 0.4 per cent of GDP," the mid-year review of the economy, tabled by Finance Minister Arun Jaitley in Parliament, said.