Crisil report says off-balance-sheet borrowings by 11 states can hurt new investments

These borrowings have been raised by entities owned by states, which also guarantee the loans. Around 4-5 percent of the revenue of states will go towards servicing such guarantee obligations this fiscal, partially reducing the ability of state governments to fund capital expenditure, the agency said. It attributed this behaviour by the states to constrained revenue growth due to the pandemic-induced slowdown, and increasing revenue expenditure.

These two reasons have led to their fiscal deficits rising to close to 4 percent of GSDP, well above the historical level of 2-3 percent seen earlier in the last decade, it added. Stuck in such a situation, states face a conundrum, it said, pointing out that if states want to borrow and pay, they will have to approach the Central government which will, in turn, look at the limits it has set.

Hinting at a way out, the agency said the states do not require the Centre's consent to guarantee the loans and advances, and bonds issued by its entities. "The power sector primarily, discoms, account for almost 40 percent of the outstanding state guarantees. These were taken to repay the dues of power generation and transmission companies with discoms continuing to make cash losses," its senior director Anuj Sethi said.

With most of them expected to continue reporting losses this fiscal as well, due to higher input (mainly coal) costs, states will have to provide higher support for timely servicing of the guaranteed facilities, he added.

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