August 28, 2021

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Market loans by states drop 12% yoy in GST aid, slowing down spending – EzAnime.net

Market loans by states drop 12% yoy in GST aid, slowing down spending – EzAnime.net
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The ongoing second wave and the increase in Covid cases in some states have led to localized lockdowns that affected state revenues. This has resulted in reduced non-essential or development expenditures for state governments.

Por Manish M Suvarna

The amount of funds raised by states through State Development Loans (SDL) so far this fiscal year, up to the last auction held on August 24, was 15% less than the amount. indicated in the debt schedule, due to lower expenses. undertaken by the states and release of compensation of taxes on goods and services by the central government.

SDL issuance also experienced a 12% year-on-year drop during the period.

Up to 23 states and one Union territory have raised Rs 2.38 lakh crore in the previous period through SDL, up from Rs 2.80 lakh crore shown on the calendar.

In fiscal year 22, states like Karnataka, Himachal Pradesh, Jharkhand, Odisha, and Tripura have yet to turn to the market for fundraising. Telangana, Andhra Pradesh, Jammu and Kashmir, Tamil Nadu, Haryana, Rajasthan, Manipur and Nagaland raised more than the indicative calendar.

The ongoing second wave and the increase in Covid cases in some states have led to localized lockdowns that affected state revenues. This has resulted in reduced non-essential or development expenditures for state governments.

The release of GST compensation by the central government has been a relief, also allowing states to cut their loans through SDL and media advances (WMA). On July 15, the central government had handed over 75 billion rupees to the states to make up for the shortfall in their revenue from the implementation of the GST.

The reason for the drop in lending is that most states are actively borrowing through WMA and a special money order service, ”said Ajay Manglunia, Managing Director and Head of Institutional Fixed Income at JM Financial.

Since the beginning of this financial year, many states have preferred to cover their income shortfalls by taking advantage of financial accommodation provided by the Reserve Bank of India, such as short-term loan through SDF (special money order service) and WMA. rather than long-term loans through the issuance of SDL, according to CARE’s report card.

In July, WMA lending by states has moderated following the release of GST compensation, easing of locks, and resumption of business activity in all states, which could have led to better income input. Soon after, in the first two weeks of August, it rose again, market participants said.

WMAs are short-term loan facilities that the central bank provides to the center and state governments to borrow funds to cover the temporary mismatch between expenditures and income. Market participants said state borrowing was also lower because investor demand was lower in the market, which is resulting in higher returns on government securities.

Borrowing costs for states have fallen below 7% for 10-year SDLs due to reduced borrowing by states. “The lower amount offered by the states brought down the cost of the loans a bit. At one point it was higher than 7% and now it is lower than 7%, ”said Manglunia.

Currently, the weighted average cost of loans across states and holdings was 6.89%, 5 basis points higher than a week ago. The increase in the cost of borrowing was due to the increase in G-Sec yields, as the market is concerned about the normalization of monetary policy by the RBI and the reduction of bond purchases by the banks. US Federal Reserves, which could lead to an outflow of funds. from Indian markets. Traders in state banks expect states to increase the lowest level of indebtedness in the second half.