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State Finances: Small savings set to rise

Mamata Singh in New Delhi

Four states expect to mobilise 53 per cent of the country's small savings during the Tenth-Plan period while Maharashtra is projecting the largest bond and debenture-based loans.

A detailed analysis shows that loans against small savings are projected to constitute the largest chunk of states' own borrowings during the Tenth-Plan period (2002-07). In almost all the states, the share of loans against small savings in the states' own borrowings is expected to go up as compared to the Ninth Plan.

At 2001-02 prices, small savings during the Ninth Plan were projected to be around Rs 542 billion and realisations were to the tune of Rs 1,027.50 billion. During the Tenth Plan, however, all the states have projected small savings mobilisation of Rs 2,037 billion -- almost double the Ninth Plan projection.

Maharashtra, West Bengal, Gujarat and UP expect to maximise the quantum of small savings. While Maharashtra expects to get loans against small savings to the tune of Rs 357.40 billion, West Bengal has projected a figure of Rs 330 billion.

States' own borrowings would include loans against small savings, negotiated loans from financial institutions, bonds/debentures and SLR based borrowings from banks. Loans from the Centre, which constitute a major chunk of borrowings of states and are part of central assistance, are not covered here.

In the Budget for 2002-03, the Centre had allowed state governments to access 100 per cent of the small savings fund, as against 80 per cent allowed earlier. The rider was that the balance 20 per cent was to be used to retire earlier high cost loans against small savings.

Correspondingly, in most states, loans against small savings as a percentage of borrowings is slated to go up. The sharpest, 20 percentage point increase is expected in case of Rajasthan and Maharashtra. Uttar Pradesh and Orissa expect the percentage to remain the same.

Delhi and Pondicherry are only allowed to take loans against small savings while figures for Bihar are not available.

State government borrowings had ballooned during the Ninth Plan period basically due to two reasons. One was the implementation of the pay commission recommendations and the other was the manufacturing recession, which affected both state government revenues and devolution to states from the Centre.

In order to meet expenditures, state governments ended up borrowing more at a time when the cost of borrowing was high.

The average annual growth of debt stock during the latter half of the 1990s was 18 per cent, significantly above the growth rate of state revenues at 11 per cent.

In order to check the problem of growing state indebtedness, the Centre and the Reserve Bank of India have imposed a number of limits on how and how much states can borrow and the results are expected to show in the next plan period in the form of decelerating growth of state borrowings.

Bond/debenture based borrowing, the most criticised component of state borrowings, is projected to touch Rs 400 billion in states as a whole during the tenth plan period. In 2000-01 prices, the states actually borrowed Rs 566 billion under this head, as against a projection of Rs 252 billion. Maharashtra has projected that it will raise the single largest chunk - almost Rs 130 via this route.

Among the four components of states own borrowings, SLR based borrowings attract the lowest rates of interest, less than 8 per cent now. Small savings, in contrast, now cost state governments 10.5 per cent.

SLR based borrowings as a percentage of total borrowings, are however projected to decline in most states except Karnataka, Tamil Nadu, Rajasthan and Andhra Pradesh.

The projections on loans negotiated from financial institutions like LIC, GIC, Nabard, IDBI etc vary with some states expecting them to go up as a percentage of own borrowings while some expect them to decline. Among special category states, however, only Tripura expects the percentage to fall.

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