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The latest Reserve Bank of India (RBI) study of state budgets has revealed that Gujarat’s outstanding liabilities, also identified as “total debts”, have crossed Rs 2 lakh crore in 2014-15, reaching Rs 2,100.4 billion, or a little above Rs 2.1 lakh crore, up from Rs 1,886.4 billion in 2013-14, a 10.19 per cent rise.
While critics consider this a very “heavy debt burden” on the state coffers, Gujarat government officials do not think there is anything alarming here, as one should look at the ability of a state to pay debts instead of talking of debts in absolute terms.
Market borrowings topped appear to have topped Gujarat’s “total debts” for the year 2014-15. These include internal debts, which were to the tune of Rs 1,613.8 billion, followed by state development loans (SDLs) of Rs 1,058 billion. Other “outstanding liabilities” include power bonds, national small savings funds, loans from banks and financial institutions, loans from the Centre, provident fund, and so on.
By calculating outstanding liabilities, the RBI believes that there is a need to take a “broader” view of debts. It says, “In assessing fiscal sustainability, it is important to focus attention on a broader concept of debt. Sustained efforts by the states are required to keep debt levels from rising.”
According to the RBI, earlier calculations, which only took into account public debt, was limited in definition, underling, “Conventional debt does not include the governments’ risk exposure to PSUs due to government guarantees, off-budget borrowings and accumulated losses of financially weak PSUs.”
The states which have higher outstanding liabilities than Gujarat are Maharashtra with Rs 3,387.3 billion, followed by Uttar Pradesh (Rs 2,936.2 billion), West Bengal (Rs 2,804.4 billion), and Andhra Pradesh (Rs 2,204.5 billion). All other non-special category states have much less amount of outstanding liabilities than Gujarat’s.
Significantly, despite a high debt burden, Gujarat’s outstanding liabilities as percentage of Gross State Domestic Product (GSDP) – which is considered the yardstick for calculating whether a state has capacity to pay the loans it taken – remains well within the permissible limit. Identified as debt-GSDP ratio, it was 25.3 per cent in 2011-12, and in 2014-15 it is 23.7 per cent. The “permissible limit”, as worked out by the Finance Commission, in 2011-12 for Gujarat was 31.9 per cent, while it was 19.1 per cent in 2014-15.
The RBI notes in the study titled “State Finances: A Study of Budgets of 2014-15”, states, “Setting the consolidated debt-GDP ratio of states on a declining trajectory is crucial to improving their finances.” It adds, “Halting the deterioration in the GFD-GSDP ratio that took place in 2013-14 is also critical in the context of fiscal consolidation.”
The RBI quotes other studies to say that a gradual fiscal consolidation based on a mix of revenue and expenditure measures can support growth, while reducing public debt. Higher initial levels of debt may also increase the probability of government pursuing successful fiscal consolidation.”
The RBI study further reveals that 52 per cent of Gujarat’s debts are more than seven years old, 24 per cent between 5 and 7 years old, 19.6 per cent between 3 and 5 years old, 2.5 per cent between 1 and 3 years old, and just about 1.8 per cent less than a year old. The percentage of loans of less than a year old is lowest among the 18 “non-special category states”.
Market borrowings topped appear to have topped Gujarat’s “total debts” for the year 2014-15. These include internal debts, which were to the tune of Rs 1,613.8 billion, followed by state development loans (SDLs) of Rs 1,058 billion. Other “outstanding liabilities” include power bonds, national small savings funds, loans from banks and financial institutions, loans from the Centre, provident fund, and so on.
By calculating outstanding liabilities, the RBI believes that there is a need to take a “broader” view of debts. It says, “In assessing fiscal sustainability, it is important to focus attention on a broader concept of debt. Sustained efforts by the states are required to keep debt levels from rising.”
According to the RBI, earlier calculations, which only took into account public debt, was limited in definition, underling, “Conventional debt does not include the governments’ risk exposure to PSUs due to government guarantees, off-budget borrowings and accumulated losses of financially weak PSUs.”
The states which have higher outstanding liabilities than Gujarat are Maharashtra with Rs 3,387.3 billion, followed by Uttar Pradesh (Rs 2,936.2 billion), West Bengal (Rs 2,804.4 billion), and Andhra Pradesh (Rs 2,204.5 billion). All other non-special category states have much less amount of outstanding liabilities than Gujarat’s.
Significantly, despite a high debt burden, Gujarat’s outstanding liabilities as percentage of Gross State Domestic Product (GSDP) – which is considered the yardstick for calculating whether a state has capacity to pay the loans it taken – remains well within the permissible limit. Identified as debt-GSDP ratio, it was 25.3 per cent in 2011-12, and in 2014-15 it is 23.7 per cent. The “permissible limit”, as worked out by the Finance Commission, in 2011-12 for Gujarat was 31.9 per cent, while it was 19.1 per cent in 2014-15.
The RBI notes in the study titled “State Finances: A Study of Budgets of 2014-15”, states, “Setting the consolidated debt-GDP ratio of states on a declining trajectory is crucial to improving their finances.” It adds, “Halting the deterioration in the GFD-GSDP ratio that took place in 2013-14 is also critical in the context of fiscal consolidation.”
The RBI quotes other studies to say that a gradual fiscal consolidation based on a mix of revenue and expenditure measures can support growth, while reducing public debt. Higher initial levels of debt may also increase the probability of government pursuing successful fiscal consolidation.”
The RBI study further reveals that 52 per cent of Gujarat’s debts are more than seven years old, 24 per cent between 5 and 7 years old, 19.6 per cent between 3 and 5 years old, 2.5 per cent between 1 and 3 years old, and just about 1.8 per cent less than a year old. The percentage of loans of less than a year old is lowest among the 18 “non-special category states”.
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