Telangana treading cautiously on market borrowings; it raised ₹17,400 crore in first quarter
What are market borrowings?
Market borrowings by State Governments refer to the funds that State governments raise by selling securities, primarily State Development Loans (SDLs), to investors in the market. Securities are assurances given by State government.
The State government proposes to raise ₹4,500 crore in four tranches in July, participating in all but one auction of securities to be conducted by the Reserve Bank of India (RBI). It has raised ₹1,500 crore during the auction conducted on July 1 and plans to raise ₹3,000 crore in three instalments during the auctions to be held on July 15, 22 and 29.
Similarly, the government indicated that it would raise ₹3,500 crore in three auctions during August and balance ₹3,000 crore in three more auctions during September taking the total borrowings to ₹11,000 crore for the quarter, according to the provisional figures in the indicative calendar of borrowings released by the RBI for the second quarter.
Why are market borrowings raised?
This is a key method for States to finance their fiscal deficits and fund various developmental activities. State Development Loans are now categorised as State Government Securities.
A steep reduction in the borrowing limit by the Union Finance Ministry is said to be another reason for the State government to tread cautiously. The government had proposed to raise over ₹69,539 crore through borrowings, including open market borrowings of ₹64,539 crore during the current fiscal in the budget estimates. But the quantum had, however, been reduced steeply to ₹54,009 crore as could be seen from the provisional figures in the key indicators released by the Comptroller and Auditor General of India in the first two months forcing the Government to restructure its open market loans to meet the requirements.
What are consolidated sinking and guarantee redemption fund?
State governments have to deposit a certain amount with Reserve Bank of India under the consolidated sinking fund and guarantee redemption fund mandatorily. If a State government defaults on the loan payments, money is deducted from these funds.
Expenditure on interest payment in two months
While the cut in borrowing limit had come as a setback, the State Government is facing a tough task in the form of interest payments. The government had incurred ₹4,166 crore towards interest payment by May end, spending 21.51% of the ₹19,639 crore projected for the year in just two months.
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