The Hindu Business Line : TN to save Rs 360 cr through debt swap

Following repeated representations from the State Governments, the Centre permitted the States to swap their high-cost small savings loans with cheaper funds from small savings as well as open market borrowings.

Under this programme, Tamil Nadu swapped Rs 942 crore of high cost funds in 2002-03, Rs 2,400 crore in 2003-04 and will swap another Rs 2,500 crore in 2004-05.

Tamil Nadu will swap its small savings loans, which carried an interest of 13 per cent to 14.5 per cent, with loans carrying an interest of 9.5 per cent and with open market borrowings with interest in the range of 6 per cent, according to officials.

Despite swapping high cost debt with low-cost funds, Tamil Nadu's interest outgo will still be at 22 per cent of total revenue receipts, at least for the next few years. This is because the Government has taken on its books about Rs 1,900 crore of money owed by the Tamil Nadu Electricity Board to various Central power utilities. The dues are to be securitised by issuing bonds.

The Government has also decided to service the bonds (amounting to about Rs 1,400 crore) floated by the Tamil Nadu Industrial Development Corporation for various capital expenditure programmes. This alone adds about Rs 100 crore to the interest outgo, according to sources.

According to the medium term fiscal plan outlined by the Government, the State's interest payments have increased from Rs 4,107.35 crore in 2002-03 to Rs 4,672.08 crore the next year.

In 2004-05, it is projected to be Rs 5,271.22 crore and Rs 7,673.37 crore in 2008-09, by which time the medium term fiscal plan goals are to be achieved.

Interest payments as a percentage of total revenue receipts will go up from 20.1 in 2002-03 to 20.7 the next year and 21.9 in 2004-05. By 2008-09, this is expected to be 22 per cent.

The medium term fiscal plan points out that interest burden as a percentage of total revenue receipts have edged up from 12.2 per cent in 1995-96 to the current levels. The plan is to slow it down and stabilise it at around 22 per cent before moving southwards.

The Government is confident of controlling fresh borrowings to be in tandem with growth in gross State domestic product.

According to the sources, the 2004-05 budget places emphasis, for the first time, on capital expenditure. For instance, capital expenditure came down from Rs 1,153 crore in 1998-99 to Rs 644.93 crore the next year. The emphasis has been on recurring expenditure and not on creating assets and maintaining them. This is what the budget has tried to change with capital expenditure as a percentage of total expenditure (excluding net loans and advances) increasing from 5.96 in 2002-03 to 12.64 in 2008-09, according to officials.

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