Market Borrowings by States

Abstract

State Governments in India have to fund a major part of their development expenses through market borrowing at the ongoing interest rate. The States have been regularly borrowing from the market using Auction mechanism through Reserve bank of India. Though most of the States use standard 10-year bonds to raise funds, some States like Karnataka and Gujarat have started looking at raising resources through issuance of short term bonds. Now market borrowings constitute about 70% in the Gross fiscal deficit (2011-12). The increased borrowing levels are due to: (a) the market based auction mechanism ensuring competitive market determined cost of borrowing; (b) the increased borrowing requirements after 2008-09; (c) the shortfall in net collections of small savings during 2008-09 and 2009-10.