“The State records a lower debt/GDP ratio”
The state government said that prudent fiscal measures and efficient financial management have enabled the state to record the lowest debt-to-GDP ratio in the country, with an average debt-to-GDP ratio of 17.2. % over the five-year period between 2014 and 2019.
The ratio for progressive states like Gujarat and Tamil Nadu was much higher at 21.1% and 21.08% respectively while that of other states like Maharashtra – 17.87% and Karnataka – 18.04 % was also higher than that of Telangana. West Bengal and Punjab recorded the highest GDPS debt ratio of 38.32% each during the period.
Highlighting the problem in the 2022 socio-economic outlook, the government said that with market borrowing being the predominant form of financing the budget deficit, it was important to ensure that borrowing costs were kept low. A recent RBI working paper – State Fiscal Performance and Market Borrowing Yield Spreads in India – showed that better fiscal and market performance was linked to a lower yield spread (cost of borrowing inferior).
The study assessed the development of the Composite State Performance Index which was comprised of fiscal, debt and market indicators examining the relationship between the index and deviations on the ground. Interstate variations in the spread of yields over time have been attributed to perceived state-specific credit risk and liquidity, the document stressing Telangana’s competent financial management said.
The document points out that in 2018-2019, compared to other major states, Telangana could borrow at the lowest rates (30 to 40 basis points above the yield of central government securities of similar maturity). The average figure for all states was 55 basis points. Similarly, Telangana issued the longest maturity security of 30 years indicating the good performance in managing the debt maturity profile.
“About 49% of government securities in circulation will not mature until after 2036, according to the latest RBI State Finances report,” says the Socio Economic Outlook 2022. At the same time, the government has taken major decisions for the mobilization resources in 2021-22 and the Cabinet Sub-Committee on Resource Mobilization recommended the review of land market values and registration fees across the state.
The revision was necessitated by the significant increase in land values, but no corresponding increase in registration fees for several years. The revision of market values and stamp duty rates came into force on July 22 last year, resulting in a doubling of monthly income from July to December on average.
Market values for farmland, plots and apartments were increased again on January 31 and the revised market values came into effect on February 1.