COVID19, Government of India, India, Indian Economy, RBI

Data: ‘Market Borrowings’ of States increase five-fold in May 2021 compared to April 2021


The second wave of COVID-19 resulted in lockdown restrictions in most states. These measures seem to have impacted state revenues considerably. State governments together raised more than Rs. 50,000 crores in May 2021 through ‘Market Borrowings’. This is an increase of five times over borrowings in April 2021.

In the previous story, we highlighted the increased reliance of  State governments on ‘Advances & OD facilities’ extended by the RBI to manage the pandemic-induced Financial stress. Apart from this assistance provided by RBI, the states also resort to ‘Market borrowings’ to manage the fiscal deficit and expenditure. In an earlier story, we had observed that there is a 57% increase in the Market borrowings of the State governments during the first half of 2020-21 compared to the same period in 2019-20.  In this story, we take a look at the trends in market borrowing during the whole of 2020-21 and also compare the figure with the previous years. 

While the volume of Market Borrowings has increased, the growth has decreased

In the earlier story on the trends in Market Borrowings, it was observed that the increasing trend in Market borrowings by the States was evident even prior to the onset of the COVID-19 pandemic. Analysis of the data over the last 5 financial years reflects this observation. 

In terms of absolute value, the combined Gross value of Market Borrowings of all the States amounted to Rs. 7.98 lakh crores for 2020-21. This is the highest annual gross value of combined Market borrowings of the States over a five-year period i.e., since 2016-17. In view of the trends observed in the case of the other sources of deficit management by the States, it is fair to say that the increase in ‘Market Borrowings’ is a result of the impact of the COVID-19 pandemic. 

The increase in ‘Market Borrowings’ is around 26% in 2020-21 compared to 2019-20. However, this is lower than the growth in ‘Market Borrowings’ in 2019-20 when it was close to 33% compared to 2018-19.  While it is true that the states have resorted to increased Market borrowings during the pandemic, it has to be noted that this is in continuation of a trend of increased reliance on ‘Market Borrowings’, even prior to the COVID-19 pandemic. 

Most of the increase in Market Borrowings in 2020-21 is during the first three quarters

In the earlier story on ‘Market Borrowings’, we had observed that the combined ‘Market Borrowings’ of all the states during the first half of 2020-21 was 57% higher than during the same period in 2019-20. In particular, the borrowings have been substantially higher during the month of September 2020. The total market borrowings by the states during this month were 70% higher in 2020-21 compared to 2019-20.  

The comparative increase in ‘Market Borrowings’ during 2020-21 continued during the third quarter also, though the increase was lower. The borrowings during Q3 of 2020-21 were around 33% higher during the same period in 2019-20.  

Over the years, it is observed that the ‘Market Borrowings’ during the last quarter of a financial year are usually higher compared to the rest of the year. Based on this, we have anticipated in the earlier story, that the overall ‘Market Borrowings’ could be much higher in 2020-21. However, the last quarter of 2020-21 bucked this trend of increased borrowings. The overall volume of the ‘Market Borrowings’ by the States during Q4 is higher than each of the previous quarters but is lower than the Q4 amount of 2019-20. This could be because states had already borrowed a lot during the previous quarters and the economic situation improved because of the complete opening up of the economy in this quarter. 

Tamil Nadu ‘Market Borrowings’ are the highest in 2020-21, while those of MP more than doubled 

As part of the half-yearly review of ‘Market Borrowings’, it was observed that Karnataka, Maharashtra & Tamil Nadu had the highest proportionate increase in Market borrowings during the first half of 2020-21 compared to the same period in 2019-20. However, the trends observed in the first half did not prevail in most of the states during the second half of the financial year. 

  • The ‘Market Borrowings’ by Maharashtra reduced during the second half of 2020-21 both compared to the first half as well as when compared 2019-20.  
  • As for Tamil Nadu, the borrowings during the second half of 2020-21 are only marginally higher than that of the borrowings during the second half of 2019-20. 
  • Madhya Pradesh which reported an 80% increase in ‘Market Borrowings’ during the first half of 2020-21 compared to the same period in 2019-20, has reported a 110% increase in the borrowings in the second half of 2020-21 compared to the same period in 2019-20. Overall, the Market borrowings of Madhya Pradesh doubled (a 100 % increase) in 2020-21 compared to 2019-20. 
  • Kerala is the only other larger state, which has doubled its borrowings compared to last year during the second half of 2020-21. The borrowings during the second half of 2020-21 were nearly 1.2 times higher than during the same period in 2019-20. 
  • Rajasthan, Punjab & Jharkhand are the other states which have reported an increased their borrowings during the second half of the year. 

In terms of the absolute value of the ‘Market Borrowings’, Tamil Nadu reported the most amount with Rs. 87.97 thousand crores, followed by U.P.  During 2020-21, the total worth of ‘Market Borrowings’ by UP was Rs. 75.5 thousand crores. 

Five-fold increase in market Borrowings during May 2021 compared to April 2021 

The ‘Market Borrowings’ by the States reduced drastically in the first month of 2021-22, i.e., April 2021 compared to March 2021.  The overall market borrowings amounted to Rs. 9.15 thousand crores in April 2021 compared to Rs. 107.5 thousand crores in March 2021. 

While this is in line with the trend in the previous years, where the ‘Market Borrowings’ at the beginning of a financial year are usually less than the amount during the end of the previous financial year, the decline is not as steep as seen in 2021-22. 

This trend was soon reversed in May 2021. During the earlier years, the ‘Market Borrowings’ for May have generally been lower than that of April. This was true even in the pandemic hit 2020-21. In 2021-22 however, the ‘Market Borrowings’  during May 2021 were Rs. 50.55 thousand crores, more than a five-fold increase compared to April 2021. In fact, the ‘Market Borrowings’ during May 2021 is the highest during the month of May since 2017-18, the year when RBI began publishing the state-wise information of Market borrowings. The states of Maharashtra & Tamil Nadu are the major contributors towards this increase in May 2021.  It ought to be noted that many of the states have resorted to lockdown measures during April & May 2021 in view of the second wave of COVID-19 pandemic, with Maharashtra & Tamil Nadu among the states that were severely hit. The lockdown measures seem to have hit the ability of the states to mop up revenue as they resorted to increased ‘Market Borrowings’. 

The trend of increased ‘Market Borrowings’ might continue in 2021-22

As the data indicates, although the volume of ‘Market Borrowings’ during the last quarter of 2020-21 was higher than the earlier quarters, the increase was comparatively lower than in 2019-20. 

At the beginning of the second half of 2020-21, it was anticipated that the rate of increase in the ‘Market Borrowings’ would persist and the volume of borrowings in the second half would be much higher than in the first half in line with the general trend every year. However, with the economy opening up after the first wave of COVID-19, most of the states did not report a major increase in the borrowings as was expected. 

As far as 2021-22 is concerned, a five-fold increase in ‘Market Borrowings’ was reported in May 2021 compared to April 2021. This is due to the impact of the lockdown measures in most states during the second wave of COVID-19.  While the second wave seems to have abated, the impact of this on ‘Market Borrowings’ of the states would only be known once the data for the subsequent months of June and July is available. 

The uncertainty surrounding future waves of COVID-19 could cause further stress on the fiscal situation of the states, resulting in increased ‘Market Borrowings’.  As highlighted in the previous story, the rate of vaccination and growth in state revenues are going to be the key to reduce the reliance on ‘Market Borrowings’. 


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