"The planned increase in SDL (state development loans) issuance in Q1 of FY19 should not be construed as an indicator of a sharp fiscal deterioration of the states' fiscal health," ratings agency Icra said in a note today.
A calendar of market borrowings by the 29 states and Puducherry last month had said their gross bond issuance would nearly double to Rs 1.28 trillion in Q1 as against Rs 65,000 crore in the year-ago period.
The agency said the surge in market borrowings is in contrast to a budgeted decline in states' fiscal deficits in FY9 compared to the revised FY18 estimates.
It said the jump in planned borrowings can be attributed to a change in the states' assessment of their cash flows, related to the modification in the timing of devolution of Central taxes from FY19.
Elaborating on the same, the agency said till FY18, states used to get 7 per cent of the budget estimates for Central tax devolution every months for the first three quarters of the fiscal year, irrespective of the actual collections by the Centre.
The pattern and timing of release of Central tax devolution is set to undergo a change in FY19, it said, adding the publication of the provisional fiscal data of the Centre for April 2018 by the Controller General of Accounts would clarify the magnitude of funds transferred to the states.
In the past 23 quarters, the actual borrowings by the states have been as per the indicated numbers only six times, it said, adding there have been eight upward and nine downward variations.
"Such trends suggest that all the state governments do not undertake a detailed assessment of the likely funding gap that may arise in the ensuing quarter before indicating their quarterly borrowing requirement to the RBI," it added.
Going ahead, the agency said the key trend to watch out for will be the states' fiscal health. This shall include GST collections after the national rollout of the e-way bill, extent to which funds are released by the states toward the crop loan waivers, and whether additional expenditure announcements are made by the states in the run-up to various assembly and Parliamentary polls, it said.
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