State Government Borrowing Costs Ease Marginally

Borrowings costs for state governments eased marginally at an auction held on Monday. Nine state governments raised Rs 12,128 crore at the latest auction.

Borrowings Front-Loaded

State governments have borrowed a total of Rs 44,778 crore so far in the first month of the current financial year, compared to raising Rs 29,572 crore worth of state development loans in the whole of April last year.

This is because they are facing a sudden stop in revenues due to restrictions on normal business activities amid the Covid-19 outbreak. Expenses, meanwhile, have surged.

In a note dated March 31, Soumya Kanti Ghosh, chief economist at State Bank of India, wrote that the fiscal deficit for state governments could rise to 3.5 percent of gross state domestic product from the budgeted 2.06 percent of GSDP, unless backed up by capital expenditure cuts.

In March, the RBI has increased the limit under ‘Ways and Means Advances’ facility by 30 percent for short-term borrowings for state governments and also has given some short-term flexibility to states in managing their cash flow mismatches.