BANGALORE: Servicing outstanding loans is becoming an increasing burden on the State Government and this has become a major cause for concern. The Government has prepared a five-point strategy for better management of debt stock in the financial year 2006-07, including swapping high-cost loans.

The total borrowings of the Government from financial institutions, the market and the Union Government as on March 31, 2006 was Rs. 41,170.78 crore as against Rs. 35,196.24 crore as on March 31, 2005. The total outstanding debt stock of the State is 30 per cent of the Gross State Domestic Product (GSDP), according to Finance Department sources.

Increased capital expenditure on education, health, infrastructure development, irrigation, power and social welfare has led to increased borrowings. Capital expenditure is increasing, on an average, by 30 per cent a year. Irrigation sector allocations have increased by 21 per cent over the past four years while allocations for education and social welfare have gone up by 11.6 per cent and 46 per cent respectively over the same period.

As a result of reform measures initiated by the Government, salary payment as a ratio of revenue expenditure came down from 30.04 per cent in 1999-2000 to 21.75 per cent in 2005-06, sources said.

The interest paid by the Government forms more than 12 per cent of its revenue receipts (budgetary estimate of Rs. 41,124.69 crore) in the current fiscal year. The budgetary estimate of interest to be paid by the Government for 2006-07 was Rs. 4,366.02 crore against revenue receipts of Rs. 35,875.08 crore. The revised estimate of interest paid in 2005-06 was Rs. 3,825.04 crore as against revenue receipts of Rs. 29,684.83 crore.

Strategy

To contain debt stock, the Government has decided to limit borrowings in a year to three per cent of the GSDP, swap high-cost loans for low-cost ones and explore the option of resetting interest rates on contingent liabilities (Provident Fund and insurance for government staff).

The State has reset and rescheduled all Central loans that carry 7.5 per cent interest, to be repaid over 20 years. By this measure alone the State has gained Rs. 292 crore by way of reduction of interest to be paid in 2005-06.

Rate of interest

Different agencies charge varying rates of interest on loans.

While open market borrowings carry an interest rate of 6.50 per cent to 7 per cent, the Centre charges 7.5 to 9 per cent

In view of the high rate of interest on borrowings from the Centre, the Government had urged the Centre to foreclose loans extended to the State so that it could raise resources from the market.

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