Debt Management of State Governments: By the end of financial year 2024, the total debt of 12 states and union territories will be more than 35 percent of India's Gross State Domestic Product (GSDP). This simply means that these 12 states of the country are at the top in taking loans and they have 35 percent of the total debt of the states. The big thing is that not only poor states like Bihar but many such states are also included in this list which are called prosperous but they have a major share of debt in the country's Gross State Domestic Product (GSDP). h3 style="text-align: justify;">Which are these 12 states
Arunachal Pradesh, Bihar, Goa, Himachal Pradesh, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Rajasthan and West Bengal have come under the radar of the Reserve Bank of India (RBI) due to their economic crisis and poor money management. RBI has also made a big disclosure on the debt of the states in its annual report 2022-23.
What are the special facts about the country's debt
More than 33 per cent of India's states and union territories with legislatures have projected their debts to cross 35 per cent of their GSDP by the end of 2023-24. These states have estimated their fiscal deficit to be more than 4 percent of their respective GSDP in this financial year. These are those states which are taking more market borrowings compared to last year. In the year 2022-23, the gross market borrowing of the states was 76 percent of the total market borrowing.
Except Uttar Pradesh, the debt of all other states will be more than 30 percent
RBI's annual report states that Andhra Pradesh, Jharkhand, Tripura and Uttar Pradesh are no longer in the category of states with high debt. Except Uttar Pradesh, the country's most populous state, all the rest have estimated their debt to be more than 30 percent of GSDP at the end of the current financial year. UP has estimated to bring the debt to 28.6 percent in the financial year 2024, whereas a year ago, UP's debt was 30.7 percent of the total GSDP.
What is special in the latest annual report of RBI
RBI has warned in its latest annual report that any extra allocation for non-essential goods and services, subsidies, money transfers and guarantees can further jeopardize the fragile economic condition of these states. Its impact could potentially hamper the consolidation of government treasury achieved in the last two years.
What is the condition of the debt of Union Territories
No union territory has estimated its debt to be more than 35 percent of GSDP. Among the union territories, Jammu and Kashmir and Puducherry are projected to cross 30 percent of their debt by the end of 2023-24. If Jammu and Kashmir, Delhi and Puducherry are excluded from the list, then at the end of this financial year the 42 percent loan can be more than 35 percent of the respective GSDP.
Number of states with high loan reduced to 12
However, since the Covid-crisis period i.e. the year 2020-21, there has been a decline in the number of states with high loan ratios. At the end of financial year 2011, 16 states had such high loans. Next year these states reduced to 13. Now according to the revised estimates of 2022-23 and budget estimates of 2023-24, it has reduced to 12.
What will be the total debt of GSDP of all the states and union territories
Overall, all the states and union territories have estimated their loan-GSDP ratio to reach 27.6 percent in the financial year 2023-24. This is 27.5 percent in the 2022-23 revised estimate.
What is the effect of high loans of states
States' high debt eats up their resources, leaving little savings for capital expenditure. For example, if we look at Punjab, the share of interest payment in its revenue receipts in this financial year is estimated to be 22.2 percent. It is 20.11 percent for West Bengal, 19.47 percent for Kerala, 14.6 percent for Himachal Pradesh and 13.8 percent for Rajasthan.
This clearly means that out of the revenue that the states are getting, they are spending a large part of it in repaying their debts. In simple words, a large part of the earnings of the states is going to repay the loans due to which they are not able to save much money for development works.
RBI report also mentions the risks of the old pension scheme
The RBI report has shown the risks associated with some states considering bringing back the Old Pension Scheme (OPS). The central bank has warned that such a change could put a huge burden on the state's finances. After this, their capacity to spend capital on development works may be limited.
The central bank's estimates show that if all states return to OPS from the National Pension System (NPS), the fiscal deficit will become a major burden on GDP by the year 2060. This can increase up to 4.5 times of NPS with an additional burden of 0.9 percent.
What is the conclusion of the assessment of RBI report
If out of 31 states, the share of only 12 states and UTs will be more than 35 percent of GSDP, then it can be called a big example of economic inequality among the states in the country. If the financial condition of the states worsens, then how will they be able to make every possible contribution to the overall development of the country.
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