Plan Panel For Moderate Increase In Market Borrowings Of States
The Planning Commission is trying to keep the debt repayment and servicing liabilities of state governments under check. It is expected to allow a modest increase of 10 per cent in market borrowings, loans against small savings and negotiated loans from financial institutions by state governments during the ninth plan.
Nevertheless, the total borrowings by state governments through these sources will be over Rs 1,10,000 crore over the next five years. Besides, state governments are also expected to raise an additional Rs 19,351 crore through bonds and debentures.
The eighth plan, which ended on March 31, saw an 11 per cent gap in net miscellaneous receipts of state governments. This is because recoveries of loans extended by state governments and collection of civil deposits did not match their debt liability which is mostly caused due to servicing and repayment of loans taken by states.
These recommendations have been made by a working group on state resources headed by S R Hasim, member, Planning Commission. Justifying its recommendation for a modest increase in market borrowings and loans against small savings, the working group said several states were already burdened by heavy debt repayment and service liability.
The group has taken into consideration three growth scenarios: a fast growth scenario of 7 per cent growth in gross domestic product and an inflation rate of 8 per cent rate, a medium rate of growth at 6.5 per cent and 7.5 per cent inflation, and a normal growth rate of 6 per cent with inflation rate at 7 per cent.
As the last National Development Council has adopted a growth scenario of 7 per cent for the ninth plan, the fast growth scenario will be used as the basis for determining the quantum of borrowings by states.
State governments will be able to raise Rs 34,879 crore through market borrowings at 1996-97 prices. They will also be able to raise Rs 52,081 crore by way of loans against small savings.
States are allowed to draw
75 per cent of small savings collections in their respective states as loans. Small savings have grown at the rate of 9 per cent during the eighth plan, partly because of the introduction of new instruments. A 10 per cent increase in loans is based on the assumption of a 10 per cent growth in small savings.
The working group has also projected a 10 per cent increase in net accruals in state provident fund which will work out to Rs 28,918 crore in the ninth plan period beginning this year. This is less than the 12 per cent growth in net accruals witnessed in the eighth plan period.
State provident funds are expected to grow in volume because of expected rise in salaries of government employees and the likely impounding of pay and dearness allowance arrears.