 "Repayment time to peak soon for market loans")
Some debt-ridden states, including West Bengal, are likely to face increasing redemption pressure from 2017-18, when the repayment schedule of their market loans begins.
Data from the Reserve Bank of India (RBI) showed this obligation for Bengal would be Rs 11,610 crore in 2017-18, against Rs 3,200 crore in 2016-17, a more than three-fold rise. On average, the share of market loans or state development loans for Bengal in its total debt burden has been close to Rs 3,000 crore yearly. Its market loan repayment obligation would be the highest among all states in that year.
States which could also see such a rise include Maharashtra, Tamil Nadu (TN) and Uttar Pradesh (UP).
RBI, in a recent report on state finances for 2015-16, said, "At the end of March 2015, around 68.5 per cent of state development loans (SDLs) were in the maturity bucket of five years and above. The increase in market borrowings of state governments since 2008-09 entails large repayment obligations from 2017-18 onwards."
For Maharashtra, TN and UP, the market loan repayment burden would increase in 2018-19, as they have started heavy market borrowing in 2008-09. RBI says in that year, the highest market loan repayment obligation will be UP's at Rs 12,690 crore, against Rs 4,420 crore in 2017-18. West Bengal's would be next at Rs 12,400 crore, against Rs 11,610 crore in 2017-18. Then Maharashtra at Rs 17,760 crore, against Rs 8,520 crore in 2017-18.
Starting 2007, states have been borrowing heavily through market loans. The borrowings were mostly through SDLs, of 20-year maturity, and mostly subscribed to by public sector banks and other government undertakings.
"Due to the financial crisis in 2007-08, states started relying on market borrowing, which led to a spike in SDLs," said Anuja Shah, economist, CARE Ratings.
Also, the government had been increasingly encouraging states to opt for market loans from 2007.
"There has been a gradual change in the mix of borrowings of the states beginning 2007, as both the central government and RBI have been encouraging states on market borrowings. The idea was to encourage a market-linked borrowing rate, as states with weaker profiles would have to pay more and those with strong profiles had to pay less. Unfortunately, spreads between borrowing costs of different states at the same auction tend to be narrowly clustered, with market forces not differentiating much between the credit profile of various states, " said Jayanta Roy, senior vice-president at ICRA.
In 2003, the central government had announced a debt swap scheme, allowing state governments to replace high-cost borrowing with lesser-cost ones from the small savings pool and market borrowing.
"It is entirely up to the central government, if it allows the states to prepay or roll-over the loans," said a senior official. A Mamata-Modi bonhomie would be important here.
A case in point is Haldia Petrochemicals, for which the Centre exempted a tax demand in excess of Rs 2,000 crore, paving the way for share transfer between TCG's Purnendu Chatterjee and the government.
The total loan market obligation of all states would be more than double at Rs 70,200 crore in 2017-18, against Rs 31,800 crore in 2016-17. The loan burden would further increase to Rs 119,900 crore in 2018-19.
The problem of debt repayment, in case the Centre doesn't extend help, would be accentuated in the case of Bengal, due to its limited revenue mobilisation, said a former official in the state's finance department. On account of several tax reforms resulting in higher tax compliance, West Bengal's revenue deficit as a percentage of Gross State Domestic Product (GSDP) fell from 2.76 per cent in 2011-12 to 1.03 per cent in 2015-16.
However, the state's own tax as a percentage of GSDP has remained almost the same over the years. In 2011-12, it was 4.72 per cent; in 2015-16, it was 4.57 per cent.
In 2016-17, the government's debt dues are projected to touch Rs 3.34 lakh crore, with its total loan repayment bill (principal and interest) expected to be Rs 36,869 crore.
