Borrowings of the state governments have risen faster than the Centre’s, according to CARE Ratings.

An analysis by the credit rating agency shows that for the last five years, while the growth in borrowings by the Centre was virtually flat with a compounded annual growth rate (CAGR) of 0.26 per cent, the States’ figure stands sharply higher at 19.5 per cent.

“Clearly, the States have been borrowing more from the market progressively, which has led to this situation. The relative importance of State borrowing has increased over the years, in terms of claims on the financial system,” said Madan Sabnavis, Chief Economist, and Rucha Ranadive, Economist, CARE Ratings.

The Centre maintained gross borrowings in the range of ₹5.8-5.9-lakh crore, while they reached ₹4,78,300 crore for States.

The agency assessed that in terms of share in total borrowings, the States’ pie has increased to 45.6 per cent in FY19 from 25.9 per cent in FY14. Putting these amounts in perspective, the agency’s economists observed that the gross borrowing of around ₹10.5-lakh crore by the two levels of government (Central and State) in FY19 compares with around ₹6.5-lakh crore raised in the corporate bond market by both private and public sector companies.

Bank credit growth in incremental terms in FY19 was almost the same as that of the government at ₹11.42-lakh crore. In case of external commercial borrowings, total registrations, or intentions, were ₹2.9-lakh crore.

“Therefore, the government is a major claimant of the available funds in the system, which has other benefits like being used for SLR (statutory liquidity ratio) and preferential treatment when reckoning risk weight for capital and so on,” the agency said.

CARE said the Centre’s dependence on market borrowings has come down as recourse has been taken to the National Small Savings Fund in particular, which the States have avoided due to the higher cost involved.

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