States have borrowed off-balance-sheet through various entities in FY12, resulting in such hidden loans increasing to 4.5% of GSDP, said a report on Wednesday.
Rating agency Crisil’s report, based on an analysis of 11 states that account for three-quarters of GSDP, warned that it would hit badly needed capital-expansion measures by states as resources would be diverted to service loans.
The Indian economy has revived to touch pre-COVID levels after a year of decline in GDP due to the impact of the COVID-19 pandemic. Policy makers are betting on capital expansion to accelerate the revival through various measures.
The Center has been trying to bring down its hidden borrowings and show a real picture of finances for the past few years.
“These borrowings have been raised by state-owned entities, who also guarantee loans. Around 4-5% of the states’ revenue this financial year will go towards meeting such guarantee obligations, partly reducing the capacity of state governments to fund capital expenditure,” the agency said.
It attributed this behavior by the states to the slowdown induced by the pandemic and constrained revenue growth due to increase in revenue expenditure.
These two factors have pushed their fiscal deficit to close to 4% of GSDP, well above the historic level of 2-3% seen earlier in the last decade.
Caught in such a situation, states are faced with a conundrum, pointing out that if states want to borrow and pay, they will have to approach the central government, which, in turn, will see the limits that it has set. have been determined.
In a way, the agency said that states do not need the consent of the Center to guarantee loans and advances, and bonds issued by their entities.
Its senior director Anuj Sethi said, “The power sector – mainly discoms – accounts for about 40% of the outstanding state guarantees. These were taken to clear dues of power generation and transmission companies.”
Most of them are expected to continue reporting losses in this financial year as well, due to higher input (mainly coal) cost, states will have to provide higher assistance for timely servicing of guaranteed facilities, he added. said.