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Why are states borrowing more?

The second part of the series on state finances reveals that against the Centre's target of minimising the differences in growth rates of various states, the disparity has widened during the Tenth Plan.

Part I: Delhi tops in per capita Plan resource

Mamata Singh in New Delhi

The disparity in per head Plan resource allocation for different states has widened during the Tenth Plan as compared to the Ninth Plan (1997-2002), although the government had targeted a decline in growth differentials among states during the Tenth-Plan period.

This is not the only problem with the aggregate Plan resources for different states. The large quantum of borrowings of states is also a problem. Seven of the 17 general category states have projected that they will borrow more than the total Plan resources allocations for the Tenth Plan.

Take Gujarat, for instance. The state has projected a sharp rise in borrowings for the next five years, i.e. 2002-07. Borrowings as a percentage of the aggregate Plan resources are projected to go up from 81 per cent in the Ninth Plan to 115 per cent in the Tenth Plan.

Haryana has also projected a similar increase. Borrowings are projected to go up from 99 per cent of the Plan resources to 112 per cent in the Tenth Plan. Pondicherry has also projected a 2 percentage point increase in borrowings against the Plan resources.

West Bengal and Punjab, the consistent defaulters, have projected a decline in the percentage of borrowings.

The borrowings will, however, still be a significant 159 per cent and 164 per cent of the aggregate Plan resources, respectively, down from 162 per cent and 204 per cent of the Plan resources allocated during the Ninth-Plan period.

Tamil Nadu, Rajasthan and Maharashtra are the other states that have projected an increase in borrowings against the total Plan resources available to them.

Among the special category states, Assam, Himachal Pradesh, Nagaland and Tripura will borrow more than their total Plan resources. Among this category, borrowings as a percentage of the Plan resources are projected to increase in all cases except for Manipur, Meghalaya and Sikkim.

The reason why states are borrowing more is that they are making losses. Out of 17, 12 states are running in losses and have no funds to finance any expenditure. Figures for Bihar are not available. The only states that expect to generate some resources are Kerala, Karnataka, Delhi, Pondicherry and Jharkhand.

The situation is worst in West Bengal, where the state is expected to lose almost Rs 313 billion, which amounts to 109 per cent of the aggregate Plan resources available for the Tenth Plan. Of this, Rs 9.90 billion loss will be on account of the public enterprises in the state.

Losses on account of the public enterprises are projected to touch Rs 28.82 billion in Delhi, followed by Jharkhand, where the public enterprises are expected to cost the state exchequer Rs 13.07 billion.

Uttar Pradesh will also make a loss of Rs 10.81 billion on account of the public sector.

While the status of states' own funds as a percentage of the Plan resources is expected to improve in almost all states, Gujarat has projected a decline.

The state expects its funds to fall from a negative 14 per cent in the Ninth Plan to a negative 61 per cent of the aggregate Plan resources. Central assistance is, however, projected to increase from 33 per cent to 46 per cent of the aggregate Plan resources.

Among the special category states, Assam, Himachal Pradesh, Nagaland, Manipur and Tripura have projected a sharp decline in their own funds as a percentage of aggregate Plan resources. Central assistance to these states is expected to go up sharply.

The special category states get funds from the Centre in a loan-grant ratio of 10:90 as against 70:30 in case of general category states.

Under central assistance, additional assistance for externally-aided projects is expected to be highest in case of Uttar Pradesh, where it is projected to touch Rs 148.89 billion, followed by Karnataka with Rs 117.90 billion and Andhra with Rs 116.49 billion.

The sharpest increase is expected in case of Kerala, where assistance for externally-aided projects is expected to go up from Rs 1.41 billion in the Ninth Plan to Rs 45.97 billion in the Tenth Plan. Assistance to Maharashtra is expected to fall during the Tenth Plan.

All special category states are expected to get more assistance for externally-aided projects, with Assam and Uttaranchal getting over Rs 10 billion.

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