An estimated redemption of state government securities (SGS) of Rs 21 trillion during FY26-30 and Rs 18 trillion during FY31-35 will likely bloat gross bond issuances over the next decade, rating agency Icra said on Thursday.
“Of the estimated stock of SGS outstanding as on March 31, 2024, Rs 20.7 trillion is expected to be redeemed during FY26-30 and another Rs 18 trillion in FY31-35, suggesting that the gross SGS issuance during the next 10 years will remain elevated,” Icra said in a note.
This increase in redemption of SGS during FY26-30 and FY31-35 is mainly led by large states such as Uttar Pradesh, Tamil Nadu, Maharashtra, Karnataka and Gujarat.
This was equivalent to nearly 55% of the estimated outstanding stock of Government of India securities (G-secs) of Rs 103.6 trillion as on March 31, 2024.
The stock of SGS, the chief source of funding the fiscal deficit of state governments, more than doubled to `56.5 trillion as on March 31, 2024 from Rs 27.8 trillion as on March 31, 2019.
During FY19-24, the stock of SGS grew at a CAGR of 15.3%, surpassing the 12.5% CAGR of the G-secs.
Over the years, with the increase in share of longer dated SGS (more than 10 years), the weighted average maturity (WAM) of the stock of SGS rose steadily to 8.5 years by end of March 2024 from 6.7 years by the end of March 2019, Icra said.
States reported sharp increase in borrowings in the Covid hit FY21 to give succour to people and meet committed expenses amidst dwindling revenues. As a result, states’ fiscal deficit shot up to 4.1% of GDP in FY21 from 2.6% in FY20.
Thanks to higher tax devolution and tax collections, the states’ aggregate fiscal deficit has been reined in below 3% of GDP in the last three years.
