Centre, states borrowings up 24.3%, 32.4% as of Feb as revenues disappoint

Falling revenue collections and rising expenditure put pressure on government finances in 2019-20, leading to higher market borrowings both by the Centre and the states, according to the data collated by Care Ratings.

The borrowings by the Centre rose 24.3 per cent while those by the states jumped 32.4 per cent in 2019-20 over FY2018-19.

Till February, the total receipts of the Centre grew only 6.8 per cent, while its expenditure grew 12.6 per cent, leading to a fiscal deficit of 135.2 per cent of the revised estimate for FY2020.

However, from a cost perspective, the year has been better thanks to the overall decline in the cost of borrowings in the economy on account of the significant 135 bps cut in the repo rate by the RBI from 6.5 per cent in January 2019 to 5.15 per cent till February. This has led to a fall in the cost of borrowings for the governments.

While the cost of borrowing for the Centre declined from 7.5 per cent in January 2019 to 6.7 per cent in January 2020, the same for the states was steeper -- from 8.1 per cent to 7.2 per cent.

The borrowing cost for the governments will come down more significantly after the slew of liquidity measures announced by the RBI on March 27 when it also cut the repo rate by the steepest in 12 years—by 75 bps to 4.40 per cent, which is a 15-year low now.

The Centre borrowed Rs 7.1 lakh crore in FY2020, up 24.3 per cent, while the states borrowed 32.4 per cent over Rs 6.3 lakh crore they had borrowed in FY2019, says the Care report.

Despite lower earnings, the Centre paid back significantly higher than the states. Total repayments of the Centre stood at Rs 2.4 lakh crore in FY2020, 59 per cent higher than a year ago while the repayments of the states aggregated at Rs 1.4 lakh crore, up only 10 per cent over FY2019.

During FY2016-FY2019, the growth in central borrowings was either negative or marginally positive and in FY2020, market borrowings recorded a substantial growth of more than 20 per cent.

The market borrowings of all states have recorded substantial double-digit growth barring an exception of FY2018 when the growth was 9.7 per cent.

However, it is important to note that all states had borrowed Rs 81,523 crore in Q1, which is significantly lower than the indicative calendar.

Of the total Rs 6.33 lakh crore borrowing of the states for FY2020, the top 10 have borrowed Rs 4.71 lakh crore or three-fourths of total market borrowings. And as a result, their cost of borrowing is also lower.

For instance, Maharashtra pays 7.29 per cent, Andhra 7.4 per cent, Telangana 7.35 per cent and Punjab at 7.35 per cent and their weighted average yields higher than the weighted average yields for all the states taken together at 7.25 per cent.