The Hindu Business Line : Karnataka: Borrowing via SPVs to exceed Rs 2,000 cr

High-level officials said that the larger borrowing estimates were on account of the incremental guarantees available for the current fiscal year. Total guarantees available this year was estimated to be Rs 2,467 crore by the State Government. Guarantees are fixed on the basis of the actual revenue receipts.

Accordingly, the sources said, this figure was Rs 12,935 crore. But the State Government already has outstanding guarantees in excess of Rs 11,000 crore to various financial institutions for the year, on past borrowings including privately placed bond issues in the past. Some of these borrowings due for redemption this year are equivalent to Rs 800 crore. Consequently the actual availability for the current year was arrived at after factoring this redemption, the sources said.

The guarantees are at least Rs 1,000 crore higher than the previous financial year (2003-04), the sources said. This increase was despite the fiscal correction measures initiated by the State Government, where it had committed to reduce off budget borrowings. The guarantee availability this year for off budget borrowings is the highest.

Moreover, these are technically contingent liabilities, but since few of the borrowing entities were in a position to generate revenues to meet the debt service liabilities, the guarantees technically devolve on to the Government increasing the revenue expenditure.

As a result the off budget borrowings of the State Government had large implications on the fiscal situation based on current estimates, the consolidated fiscal deficit of the State Government is expected to be in excess of 3.5 per cent.

Exclusive of the contingent liabilities, the fiscal deficit was estimated at only 2.62 per cent. However, even this estimate has been made on the assumption of some highly optimistic Gross State Domestic Product figures.

(The Karnataka State Government has estimated an SDP of Rs 1,61,840 crore for the current fiscal as against Rs 1,30,678 crore for the previous fiscal. This translated into a nominal GDP growth of about close to 23 per cent.)

The sources said that the guarantee would not apply to two State Government special purpose vehicles set up for irrigation purposes — the Krishna Jala Bhagya Jala Nigam Ltd and the Karnataka Neeravari Nigam Ltd.

Both these entities' borrowings are determined by the State Government capital expenditure. The capital expenditure of the State Government for irrigation is capitalised to partly fund the debt service obligations of these two corporations.

The increased guarantee availability also improved this year on account of the appreciation of the rupee against the dollar till May this year. For liquid fuelled private producers, the State Government guarantee provided included foreign debt. But this year with the resumption of the rupee's depreciation, the guarantee liability was also expected to increase during the course of the year. This was particularly because some of the rupee's gains during the year have eroded.

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