States including UP get July nod to borrow Rs 42,268 cr

The Center authorized a number of states including Uttar Pradesh in July to borrow Rs 42,268 crore, raising the total debt ceiling for all states for the first three quarters of FY23 to 6 .14 ​​trillion rupees.

This amount represents 71.5% of their aggregate annual Net Borrowing Limit (NBC) of Rs 8.58 trillion (3.5% of GSDP).

Approvals, which typically arrive in April of a fiscal year, were delayed this fiscal year after the Center reviewed states’ off-budget balance sheets.

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As in the last fiscal year, government borrowing for the April-December period of fiscal year 23 has been set at 75% of its annual ceiling. However, the total amount of the penalty is less than this cap, as approximately Rs 41,000 crore of off-budget debt of some states (in FY22) will be adjusted against their borrowing limit for the exercise 23.

In June, the Center decided to lift a virtual freeze on the borrowing of certain states with large off-budget debts. It has, however, decided to remove at least 25 basis points (bps) from the NBC of 3.5% of the GSDP of these states in FY23, in case the off-balance sheet borrowings in FY22 exceed 25 basis points of the projected GSDP in the current fiscal year 2023 budget.

The estimated debt balance will be brought back above the three-year line until FY26 in equal installments. Off-budget commitments were not counted until FY22.

Under Section 293(3) of the Constitution, states cannot borrow beyond the annual limits set by the Center. However, they do not need the prior agreement of the Center to guarantee loans and advances, as well as bonds issued by entities supported by them. This is now part of the states NBC if the loan is funded from their budget.

In total, states raised 1.98 trillion rupees through State Development Loans (SDLs) till August 8, 9.4% less than a year ago.

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