Tamil Nadu, Uttar Pradesh and Maharashtra have projected the highest market borrowings for the second quarter of fiscal year 2023-24. According to the indicative calendar released by the Reserve Bank of India (RBI), Tamil Nadu tops the borrowing projection list with ₹25,000 crore, followed by Uttar Pradesh (₹21,500 crore) and Maharashtra (₹20,000 crore).

According to the RBI data, a total of 25 States have projected to borrow ₹2.37-lakh crore in Q2. These projections are 12 per cent higher than ₹2.12-lakh crore of indicative State borrowings for the same quarter of the previous fiscal.

Market borrowings of States is through issue of bonds under State Development Loans (SDLs). According to a businessline analysis, the top 10 States with highest borrowing projections account for ₹1.78-lakh crore or 75 per cent of the total borrowings of all States. However, it is to be noted that the figures are only indicative and States may overshoot or borrow less than their projections.

For instance, in Q1 FY24, a total of 24 States projected a borrowing of ₹2-lakh crore, however, the States ended up borrowing ₹1.67-lakh crore, or 84 per cent of their projections.

The cost factor

Madan Sabnavis, Chief Economist, Bank of Baroda, said borrowings are typically determined by cash flows and the indicative borrowing calendar is based on the State’s revenue and expense projections for the year. “In case expenses are lower or revenue is higher, they would desist from borrowing as there is a cost involved,” he added.

He added that States may also defer borrowings in case they do not have capex plans on the anvil.

Of the top 10 borrowers, four States — Tamil Nadu, Andhra Pradesh, Rajasthan and Punjab — have exceeded their planned borrowing amount in Q1 while Uttar Pradesh, West Bengal and Gujarat borrowed lesser than their indicated borrowing.

Tax devolution

Sabnavis said States may borrow less in the current quarter as well given the fact that the Centre has given two instalments of tax devolution and a loan specifically for State capex in June.

The Centre released the third instalment of tax devolution of ₹1.18-lakh crore to State governments on June 12, against normal monthly devolution of ₹59,140 crore. It also approved ₹56,415 crore of interest-free, long term capex loans to 16 States in June. “Again, it (borrowing) will be more State specific and there will not be a general rule across all States as it is need-based,” he added.

In FY24 BE, the Centre has projected a market borrowing of ₹15.43-lakh crore. It has already borrowed ₹4.41-lakh crore in Q1 and is expected to raise ₹4.47-lakh crore in Q2.