The Telegraph
Since 1st March, 1999
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Crisil paints debt doom for states

Mumbai, July 16: Are states drowning in a whirl of debt' Not yet, but they could be in it four years now, says a Crisil report that estimates they could end up groaning under a Rs 1,20,0000-crore pile of borrowed money.

States’ indebtedness (debt plus guarantees) in relation to their revenues will increase from 2.8 times in 2002 to 3.6 times in 2007. Annual debt-servicing obligations (debt plus guarantees) will also rise to Rs 63500 crore in 2007 from an estimated Rs 25600 crore in 2002-03.

However, the picture could change dramatically if state policies in key areas are amended to shore up their finances. Says Roopa Kudva, executive director and chief rating officer of Crisil, “If states successfully tackle the issues of power sector subsidies, pension liabilities, and undertake expenditure reform measures, the future scenario may be different from past trends.”

The objective of the forecast is to estimate the future fiscal position of states and underline the fragile nature of their finances, the rating agency added.

In drawing the conclusions, Crisil assumed that states’ revenue receipts will grow at a lower rate over the next four years, given the slowdown in the Centre’s tax collections and, hence, in transfers to the state governments.

A lower growth rate has been assumed for revenue expenditure and sureties since states have already absorbed most of the impact of the Fifth Pay Commission revisions, and are attempting to limit guarantee levels.

Crisil expects states to repay 5 per cent of their debt stock by 2006-07 compared with an estimated 3.5 per cent in 2002-03. The rise is because of the move to swap high-cost debt with market borrowings.

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