The debt levels of state governments in 2002 were as high at over 26 per cent of the gross domestic product (GDP). Together with their guaranteed off-balance sheet borrowings, the states aggregate debt burden was over a third of the GDP.
This is very unlikely that the scenario will improve, said Crisils director (infrastructure rating) Anil Kumar. The pressure on the states fiscal position has come from large and growing revenue and fiscal deficits in recent years.
Rising state revenue deficit levels have been the largest contributor at about 60 per cent of the states gross fiscal deficit (GFD), primarily because of interest charges on funds borrowed to meet revenue expenditure.
Now, as the debt burden doubles, it would heighten the states debt-servicing obligations and put further pressure on the already fragile state governments, said Mr Kumar.
The states revenue expenditure accounts for an astounding 80 per cent of their aggregate expenditure. Moreover, the revenue expenditure has risen steeply at a CAGR of 12 per cent since 1998, primarily because of the higher salary outgo following the implementation of the fifth pay commissions recommendations. This has pushed up the states revenue deficit, which is being funded through debt.
A closer examination reveals that, because of the growing indebtedness, interest payments today account for about 20 per cent of the revenue expenditure followed by pension payments (8 per cent) and power subsidies (5 per cent). Interest and pension payments have, in fact, increased significantly at a compounded annual growth rate (CAGR) of 22 per cent and 25 per cent respectively over the last five years. They are expected to keep growing and so will continue to exert pressure on the states revenue expenditure in future, the study said.
With the growing fiscal deficit being funded by additional debt, the states aggregate debt levels have also witnessed a steep increase. As at March 31, 2002, the combined debt levels of the state governments amounted to Rs 589200 crore, an increase of 18 per cent over 2001.
About 45 per cent of the outstanding debt comprised loans from the centre, 17 per cent was through market borrowings, 16 per cent through small savings and 8 per cent from financial institutions.