Following revenue shortfall owing to COVID-induced lockdown during the first quarter of this financial year (2021-22), the State government has proposed to raise ₹8,000 crore in loans through market borrowings in the second quarter (July-September).
These market borrowings, known as State Development Loans (SDLs), would be raised through the Reserve Bank of India (RBI). The rate of interest on these loans would be around 7%. The State government would participate in auctions of market borrowings on August 3 and 17 and September 7 and 14, and borrow ₹2,000 crore each on the four occasions, the RBI said.
Following the shortfall in revenue, market borrowings were inevitable since the government had to fulfil commitments on payment of salaries, pension, and other heads of accounts. It has to ensure availability of financial resources for handling of the pandemic and implementing subsidy schemes for BPL families.
The RBI, in consultation with the State governments/Union Territories, confirmed that the quantum of total market borrowings by them for the July-September quarter was expected to be ₹1,92,091 crore.
Many States, including Tamil Nadu, West Bengal, Rajasthan, Gujarat, Punjab, and Andhra Pradesh, which were impacted by lockdowns in different phases, have already raised huge sums through market borrowings.
While Karnataka raised loans in July last year, this year it started to raise loans in August, which indicates an improved financial position for the State. Karnataka’s revenue collections through Goods and Services Tax, sales tax, and excise have recorded improvements this year when compared to 2020-21.
No fresh taxes
The State was expected to have a revenue shortfall owing to it not levying fresh taxes in the 2021-22 Budget and the lockdown. In March 2021, the State proposed to borrow over ₹70,000 crore (4% of the GSDP) during the current financial year.
The RBI said it would conduct auctions of SDLs in a non-disruptive manner, taking into account the market conditions and other relevant factors, and distribute the borrowings evenly throughout the quarter.
