Money matters: States' borrowings at 60% of Dec target, shows data

States are on track of fiscal consolidation with their total borrowings reaching Rs 5 trillion till October, which is 60 per cent of the projected borrowings of Rs 8.38 trillion till December 2024, according to data from official sources.

 

Government officials said the lower-than-projected borrowings by states were a sign of prudent fiscal management by them. States announce their borrowing plans every quarter. 

States are allowed to go for a fiscal deficit of 3 per cent of their GSDP and 0.5 per cent relaxation is given in case they pursue power sector reforms. 

Experts, however, say states have continued to borrow as per their needs and lower borrowings could be because of lack of projects involving high capex. Upcoming elections in several states, including Jharkhand and Maharashtra, and the recently held Haryana polls could also have stalled investments in capital-intensive projects, economists said. 

 

“Overall state spending has been low because of elections in several states. If there are no capex-led projects, then states can resort to their own cash flows to meet revenue expenditure. There are also some states such as Gujarat and Maharashtra which project higher borrowings for fiscal prudence,” said Madan Sabnavis, chief economist, Bank of Baroda. 

In order to push states to accelerate capital spending and finance their development and welfare-related expenditure, the Centre has so far released 65 per cent of the total tax devolution to them. This includes two advance instalments. 

In its report released on Tuesday, Motilal Oswal noted that based on the provisional data for 18 states, capex is estimated to have fallen 11.5 per cent year-on-year (Y-o-Y) in the first half of FY25. These states reached 26.7 per cent of Budget Estimates in H1FY25, compared to 31.8 per cent in the corresponding period last year. 

“Our estimates suggest that states' capex dipped 20.8 per cent Y-o-Y in Q1FY25, followed by a decline of 5.7 per cent Y-o-Y in Q2,” the Motilal Oswal report said. 

The aggregate fiscal deficit of 21 states, according to an Ind-Ra study, stood at Rs 4.1 trillion in H1FY25. This was 44.1 per cent of Budget Estimates for FY25. Among the key states, the study said, Bihar, Andhra Pradesh, Punjab and Telangana have utilised more than two-thirds of their budgeted fiscal deficits in H1FY25. 

States such as Chhattisgarh, Uttar Pradesh, Karnataka, and Maharashtra maintained a fiscal restraint, with their fiscal deficits in H1FY25 being lower than 25 per cent of FY25BE.