Amid back-ended redemption of state development loans (SDLs) and funding of crop loan waivers by some states, state government’s market borrowings are expected to increase in the second half (H2) of the current fiscal (FY2018). Credit rating agency, ICRA in its latest report has estimated that borrowing may rise to Rs 3.0-3.2 trillion in H2 FY2018 from Rs 1.8 trillion in H1 FY2018. It also estimates that around three-quarters of the total SDL redemption of over Rs 700 billion, due in current fiscal, is to be redeemed in second half.
The rating agency further predicted that total SDL borrowings for the current fiscal year could be in the range of Rs 4.8-5 trillion, which is higher than its initial baseline estimate of Rs 4.5 trillion for the year. As per the report findings, a 42.7 percent year-on-year (Y-o-Y) growth in SDL issuance in Q2 FY2018 is on the back of a mismatch of revenue and expenditure of state governments emanating from transitional cash flow issues related to the migration to the goods and services tax (GST).
ICRA also noted that the compensation for loss of revenue related to the shift to the GST and the release of the share of the state governments in Integrated GST (IGST) would start flowing from the central government to the state governments and this would ease their liquidity situation during H2 FY2018.