The Hindu : Karnataka / Bangalore News : Karnataka’s debt to increase this fiscal

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Friday, Oct 12, 2007
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Karnataka

Karnataka - Bangalore

Karnataka’s debt to increase this fiscal

Nagesh Prabhu

Borrowings from Union Government and financial institutions to touch Rs. 45,413.23 crore

State’s debt increased from Rs. 35,196.24 crore in 2004-05 to Rs. 45,413.23 crore in 2007-08
Open market borrowings carry an interest of 6.5 per cent; the Centre charges 7.5 to 9 per cent

BANGALORE: With the State increasingly giving priority to development projects, its borrowings from the Union Government and financial institutions have increased.

The State has earmarked substantial outlays both under revenue and capital heads for high priority development expenditure. With this, its total borrowings from the Centre, financial institutions and from the market will increase. In the current financial year (2007-08), it is slated to touch Rs. 45,413.23 crore as against Rs. 43,522 crore in 2006-07.

Borrowings from financial institutions are mostly from Life Insurance Corporation of India, General Insurance Corporation of India, National Bank for Agriculture and Rural Development (NABARD), power bonds and small savings. The total outstanding debts to financial institutions estimated at Rs. 22,614.23 crore this year, constitute nearly 14 per cent of the State Gross Domestic Product (SGDP), which is Rs. 2,20,006 crore.

Debt increase

According to Finance Department sources, the State’s debt increased from Rs. 35,196.24 crore in 2004-05 to an estimated Rs. 45,413.23 crore in 2007-08, an increase of 33 per cent. Borrowings from financial institutions rose on account of a decline in funds raised directly from the markets, from Rs. 11.769.50 crore in 2004-05 to Rs. 11, 235.75 crore in 2007-08.

Increase of capital expenditure on primary education (increase of 23 per cent), health (43.07 per cent), public works development (8.4 per cent), irrigation (29 per cent), and social welfare (22 per cent) has led to increased borrowings. Capital expenditure is increasing, on an average, by 30 per cent a year. In fact, borrowings from financial institutions which are more expensive than market borrowings, are used for implementing various development projects. The interest paid by the Government is more than 11 per cent of its revenue receipts. The budgetary estimate of interest to be paid is Rs. 4,818 crore against revenue receipts of Rs. 40,762.09 crore during the current fiscal.

Interest rate

Different agencies charge varying rates of interest on loans. While open market borrowings carry an interest rate of 6.5 per cent to 7 per cent, the Centre charges 7.5 to 9 per cent. NABARD, which provides loans for construction of roads, bridges, school and college buildings under the Rural Infrastructure Development Fund, charges 6.5 per cent a year. In view of the high rate of interest on borrowings from the Centre, the State had urged the Centre to foreclose expensive loans extended to it earlier so that it can raise additional resources at lower rates of interest from the market.

The State has already repaid loans amounting to Rs. 914 crore in 2006-07 and is expected to repay Rs. 1,299.48 crore this fiscal.

New strategy

The Government has a new strategy for better debt management. “There are few high cost loans of LIC, GIC, and NCDC which need to be pursued for pre-payment,” sources said. The foreclosure of such loans would also entail pre-payment penalty. The Finance Department is proposing to improve upon the current data base on the State’s debt by introducing Commonwealth Secretariats’ Debt Reporting and Management Software.

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