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Maharashtra’s outstanding debt highest in country

Debt servicing unlikely to cause state any problem as its debt to GSDP ratio is low.

Written by George Mathew
Mumbai | April 28, 2018 5:24:23 am
Higher debt levels, interest payments, and revenue balances play a role in terms of allocations made for capital expenditure (capex) by states.

Maharashtra, the most industrialised state in the country, has the highest debt levels among all the states. As per the budget estimates for fiscal 2019, the state’s outstanding debt is expected to hit Rs 4,61,913, crore, a 13.47 per cent rise from the debt level of Rs 4,07,068 crore (revised estimate) in fiscal 2018 and Rs 3,64,743 crore in 2017. Uttar Pradesh has projected a debt level of Rs 4,43,363 crore in 2019 as against Rs 4,06,474 crore in 2018 and Rs 3,73,417 crore in 2017. West Bengal ranks third in the list  with debt expected to rise to Rs 3,94,832 crore in 2019 from Rs 3,64,019 crore in 2018.

However, debt servicing is unlikely to create any problem for Maharashtra as its debt to GSDP (gross state domestic products) ratio is comfortable at 16.5 per cent. “Some of the larger states with high debt levels like West Bengal, Uttar Pradesh, Rajasthan, Kerala and Punjab have high debt/GSDP ratio. This is a concern as progressively there would be pressure on servicing the debt. Punjab and West Bengal would continue to have high debt burden at 41 per cent and 38 per cent of their respective GSDP,” Care Ratings said in its Analysis of State Budgets.

“Punjab and West Bengal are among the most indebted states of the country. Over 20 per cent (26.7 per cent and 20.7 per cent respectively) of their revenue receipts are spent towards interest payments which pressurises their ability to spend on development purposes,” said Care Ratings. In the case of Maharashtra, 14.2 per cent of the revenue receipt was spent for interest payment in 2018. The lowest debt to GSDP ratio was observed for Karnataka, Gujarat, Maharashtra, Goa, Chhattisgarh, Uttarkhand, and Haryana in both the years. A larger base of GDP provides support for higher debt level in case of Maharashtra.

“Karnataka, Chhattisgarh, Odisha and Telangana have been seen to be efficiently managing their debt obligations. They have low debt to GSDP and interest to revenue receipt ratios i.e. within the stipulated norm of 25 per cent and 10 per cent respectively,” the report said. While the debt as a proportion of GSDP is high for the North-eastern states and J&K, their interest expenditure (as a percentage of revenue receipts) is low. As many as 10 states, including Maharashtra, have seen their capital outlay as a percentage of total expenditure declining. For five of these states, the decline in capital outlay is accompanied by an increase in the fiscal deficit (as a percentage of GSDP). Telangana, Uttar Pradesh, Chhattisgarh, Kerala and Maharashtra’s capital outlay as a percentage of total expenditure was two to seven per cent lower in FY18 compared with that in the previous year.

The report said several states, including Maharashtra, also reported high revenue expenditure. Kerala and Tamil Nadu have the highest proportion of revenue expenditure to total expenditure at around 90 per cent. “Maharashtra, Haryana, Chhattisgarh, Madhya Pradesh, Rajasthan, Karnataka, Assam and Andhra Pradesh too have high revenue expenditure at over 80 per cent of its total expenditure. Revenue expenditure has been outpacing revenue receipts, resulting in revenue deficit in state’s with high revenue expenditure,” said Care Ratings.

Higher debt levels, interest payments and revenue balances play a role in terms of allocations made for capital expenditure (capex) by states. In FY18, the average share of capex to total expenditure was 14.2 per cent. It was lower than this average in case of Maharashtra, Tamil Nadu, West Bengal, Punjab, Rajasthan, Chhattisgarh, and Kerala.

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