Global Economy

Centre red-flags 'disturbing trends' in states' finances

The Centre has red-flagged ‘disturbing trends’ in several states’ finances and cautioned them citing the economic crisis in Sri Lanka and Pakistan. This was alerted at a high-level meeting of the Centre with all state chief secretaries in Dharamshala on June 16-17.

High off-budget borrowings by several states, escrowing of future revenue, loans secured against public assets like hospitals, courts and parks and burgeoning power dues were flagged off by the Centre at the meeting chaired by prime minister Modi, ET has learnt.A recent RBI paper had raised concerns about the building fiscal stress across many debt-ridden states. A finance ministry overview presented at the meet shed light on the worrying financial situation across several states. Off balance sheet/ off budget borrowings were red-flagged as a key ‘disturbing trend’ in this overview, ET gathers.

Telangana leads with Rs 56,767 crore of off budget borrowings between 2019-20 and 2021-22, which is over 4.5% of its GDP. Sikkim and Andhra Pradesh’s off budget borrowings were near 2.5% of their GDP while Uttar Pradesh and Kerala have indulged in off budget borrowings of Rs 24,891 crore and Rs 10,130 crore respectively, data shared at the meet showed.

“Some states are taking loans secured against assets like municipal parks, collector’s office, taluk office, courts, hospitals etc. Entities which do not have revenue streams to service the loans are getting loans based on state government guarantees and/or security of land or escrow of state revenue”, it was pointed out at the meeting, ET has learnt.

States which raised largest amount of funds through escrowing of future revenue between 2019-20 and 2021-22 are Telangana, Uttar Pradesh, Punjab, Madhya Pradesh and Himachal Pradesh. While AP’s fund mobilisation is as high as 1.88% of its projected GSDP of 2022-23, UP is at 0.87%, Punjab follows at 0.46% of its GSDP, Madhya Pradesh at 0.21% and Himachal Pradesh at 0.05% of its GSDP.


The second major ‘disturbing trend’ flagged off by the Centre is the burgeoning unpaid power dues. Total overdues of states/UTs towards generation companies, excluding state-owned ones, is Rs 1,01,442 crore — Rs 26,397 crore is due to Central Power Sector Enterprises alone.

Another Rs 62,931 crore is due to distribution companies. Discoms, in fact, await Rs 76,337 crore balance of subsidy from states, it was shared at the meeting. Observing that this is the prime cause of continued difficulties in the power sector, the Centre warned that while rarely invoked, tripartite agreements allow for CPSE dues to be deducted from tax devolution to the state concerned. As on May 31, 2022, Maharashtra led in overdue towards Gencos at Rs 21,565 crore followed by Tamil Nadu at Rs 20,990 crore, Andhra Pradesh at Rs 10,109 crore and UP at Rs 8,230 crore.Government departments’ outstanding dues to distribution companies (DISCOMS) are equally worrying with Telangana owing Rs 11,935 crore, Maharashtra at Rs 9,131 crore, Andhra Pradesh at Rs 9,116 crore and Karnataka at Rs 6,600 crore as on March 31.

The highest balance subsidy due to DISCOMS from states is recorded in Uttar Pradesh with Rs 18,940 crores due followed by Madhya Pradesh, Rajasthan and Punjab.


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