In what could lead to lower market borrowings by states in March, the Centre on Thursday released two instalments of tax devolution amounting Rs 1.42 trillion, boosting their liquidity to spend in the last month of the current financial year.
“Two tax devolution instalments have been released to states today (Thursday) given the buoyant tax collections. One pertains to February 2024 and one instalment is in advance,” the finance ministry said.
Based on the revised estimate, three instalments were expected to be released in March. With the latest release of funds, the Centre has released Rs10.32 trillion, leaving just Rs68,000 crore that would be released later in March. The Centre has sharply revised upwards tax devolutions, from Rs10.2 trillion in FY24BE to Rs11 trillion in FY24RE.
Analysts have said higher devolution would reduce the states’ borrowings in March. The frontloading of tax devolution would strengthen the hands of state governments for financing various social welfare measures and infrastructure development schemes, the ministry said.
The state government securities’ cut-off yield eased by 2 bps to 7.44% on February 27, with issuance trailing the indicated amount for the fifth consecutive week.
Besides frontloading of tax devolutions, interest-free loans from the Centre helped the states increase their capex by 40% on year in the first nine months of the current financial year, compared with a 7% rise in the year-ago period.
