For third year in a row, Tamil Nadu has topped the list of States with highest market borrowings.

According to RBI data, Tamil Nadu’s gross market borrowings through State Development Loans (SDLs) stood at ₹68,000 crore during April-February FY23. 

It was followed by Andhra Pradesh and Maharashtra with ₹51,860 crore and ₹50,000 crore in gross market borrowings, respectively.  

Tamil Nadu stood on top of the borrowing table in the previous two fiscals too. The State borrowed ₹87,977 crore in FY21 and ₹87,000 crore FY22. However, it is to be noted that for the full FY23, the State’s borrowings are likely to be slightly lower in FY23 compared with the previous two fiscals.

However the State’s total debt as a percentage of GSDP (Gross State Domestic Product) is well within the limit set by Finance Commission. 

An analysis of the top 10 borrowing States shows that Uttar Pradesh, West Bengal and Karnataka have sharply reduced their borrowings during FY23.

Uttar Pradesh’s borrowings nearly halved to ₹33,500 crore in the first eleven months of FY23 against ₹62,500 crore in the whole of FY22. Robust revenue collections through own tax and non-tax sources have helped many states to reduce their dependence on market borrowings in FY23.   

However, not all States were able to clamp down on their borrowings. Borrowings of Andhra Pradesh, Haryana and Gujarat in the first eleven months of FY23 already exceeded the full year’s borrowings in FY22.   

State borrowings

According to RBI’s indicative borrowing calendar, 22 States and two Union Territories projected a market borrowing of ₹1.99-lakh crore during April-June 2023. 

Rating agency ICRA said the indicated borrowings of Maharashtra (₹25,000 crore), Tamil Nadu (₹24,000 crore), and Andhra Pradesh (₹20,000 crore) alone account for over 35 per cent of the total borrowing projection of ₹2-lakh crore for Q1 FY24.

States like Arunachal Pradesh, Bihar, Jharkhand, Karnataka, Manipur and Odisha have not indicated their participation in Q1FY24 borrowing auction.

According to ICRA, the reduction in the Goods and Services Tax (GST) compensation to the States as well as the borrowing limit by 0.5 per cent to 3.5 per cent of GSDP in FY24 , would compress the resources available to the States for funding their deficit. 

However, the rating agency added that the Centre has enhanced the allocation under the interest-free capex loan to the States to ₹13-lakh crore in the budget estimates for FY24 from ₹7.6-lakh crore in the revised estimates for FY23. 

“The increase in allocation by the Government of India to the interest-free capex loan to the States in FY24 relative to FY23 is likely to cushion the impact of scheduled reduction in their net borrowing ceiling as well as a sharp dip in the GST compensation grants,” it added.