Tamil Nadu under rating watch

High ratings are important for any government to raise low cost funds. The higher the ratings, the lower are the cost of funds. A rating watch means that the state8217;s rating will come down and it will have to raise funds at higher cost.

The rating action follows recent announcements by the state government of its intention to implement various pre-electoral promises, including sale of rice at Rs 2 per kilogram, free power supply, waiver of farmer loans and distribution of free colour television sets.

8216;8216;Expenditure on these schemes would lead to higher subsidy burden, additional non-developmental expenditure and would negatively impact the financial risk profile of the state government; thereby adversely impacting the credit rating of the GoTN-guaranteed instruments,8217;8217; it said.

8216;8216;Crisil expects to resolve the rating watch once the budget proposals are passed in the state assembly and there is clarity on the impact of the schemes on Tamil Nadu8217;s quality of expenditure as well as levels of deficits and indebtedness,8217;8217; said Crisil.

Crisil also lowered the rating on the Chennai Metropolitan Water Supply and Sewerage Board8217;s bonds saying that the rating on these bonds aggregating Rs 92 crore is backed by financial and operational support provided by the Government of Tamil Nadu.

The schemes would engender higher subsidy burden and additional non-developmental expenditure which would negatively impact the financial risk profile of the state government.