Higher than budgeted revenue collections to help states cut market borrowing: Report

The higher-than-budgeted revenue collections, mostly higher tax devolution from the Centre, will help states reduce their market borrowing to Rs 7.6 lakh crore, almost 5 per cent less than what they had drawn last fiscal, says a report.

Rating agency Icra's chief economist Aditi Nayar on Friday forecast a 4.7 per cent decline in gross issuances of state development loans (SDL) at Rs 7.6 lakh crore.

She expects the borrowing to be just Rs 2 lakh crore in Q3 and Rs 2.5 lakh crore in Q4.

Higher-than-budgeted tax devolution to limit gross SDL issuance to 7.6 lakh crore this fiscal, which is 4.7 per cent lower than the year-ago level, Nayar said and pointed out that this is because after the 12.6 per cent contraction in the gross state development loan issuance to Rs 3.1 lakh crore in H1 of FY22, the Reserve Bank has pegged the same at Rs 2 lakh crore for Q3, which is similar to the level in Q3 FY21.

"Factoring in our expectation of higher-than-budgeted central tax devolution in FY22, we project the net SDL issuance at Rs 1.7 lakh crore in Q4 of FY22, which will be 15.3 per cent lower than Rs 2 lakh crore in Q4 of FY21," the report said.

For the full fiscal year, "we estimate net and gross SDL issuance at Rs 5.5 trillion and Rs 7.6 lakh crore, respectively, which is 15.3 per cent and 4.7 per cent lower than the year-ago levels," it added.

The RBI pegs the market borrowing of 26 states (other than Odisha and Tripura) and two Union territories at Rs 2 lakh crore, similar to the number in Q3 of FY21.

Meanwhile, forecasting that gross SDL issuance will decline by 8.1 per cent in the first three quarters of FY22, she said if the actual issuance of Rs 3 lakh crore in H1 added to the gross issues of Rs 2 lakh crore indicated for Q3, total issuance will contract by 8.1 lakh crore to Rs 5.1 lakh crore the first three quarters of FY22 from Rs 5.6 lakh crore in the same period last fiscal.

Adjusting for the estimated redemptions of Rs 1.3 lakh crore during this period, net issuance will contract by a sharp 15.4 per cent to Rs 3.9 lakh crore during this period from Rs 4.6 lakh crore a year ago.

Central tax devolution expected to exceed FY22 budget estimates, boosting states' cash flows in Q4.

The agency expects the tax devolution to the states to exceed the amount included by the Centre in the budget FY22 by Rs 60,000 crore -- likely to be released by in the last two months of the fiscal.

However, redemptions are set to rise in Q4, both annually and sequentially lowering the net issuance to Rs 1.7 lakh crore or by 15.3 per cent from Rs 2 lakh crore in Q4 of FY21) and gross issuances to Rs 2.5 lakh crore, which is 2.9 per cent more than Rs 2.4 lakh crore in Q4 of FY21 and close the year with a net draw down of Rs 5.5 lakh crore and gross issuance of Rs 7.6 lakh crore in FY22.