2. 1
Chart 1 analyses average interest cost for centre and states for the period from
FY14 to FY20(BE). This average interest cost for a year has been computed by
calculating interest expenditure as a proportion of average outstanding liabilities
for the current and previous year. Outstanding liabilities for this computation
includes government market borrowings, ways and means advances from RBI
(WMA), loans from Centre and other public sector undertakings, National Social
Security Fund (NSSF) and other funds like provident funds, reserve funds,
contingency fund among others.
Interest expenditure, which accounts for almost 12% of the aggregate expenditure of all
states,is one of themost important committed expenditure.Aggregate interest expenditure
for all 30states (including union territories) stood at Rs 3.2 lakh crs during FY19(RE)and is
budgeted to increase toRs 3.5lakh crs during FY20(BE), having grown at a CAGR of 12%
during FY10-FY20(BE). The outstanding liabilitiesfor all statesis estimated at Rs 47.1 lakh crs
as at FY19(RE) and is budgeted to grow by 11.5% during FY20(BE) to Rs 52.5 lakh crs.
Outstanding liabilities have grown at a CAGR of 12.3% during FY10 –FY20(BE).
Mutual Funds Update For September2019
Economic Spotlight
17 October 2019
3. 2
There has been no clear trend in the average interest cost for states and centre. For 6 of the 7
yearsthe states had a higher costwhile only the budgeted FY20 numbers have higher cost for the
Centre. -The differential in average cost was 1 bps in FY14 and peaked at 38 bps in FY15.
It was 20bps in FY18 and 8 bps in FY19(RE).-The financial year end repo rate has declined from 8% in
FY14 to 6% in FY18 and rose again to 6.25% in FY19 year end. There has been a decline in repo rate
during FY14 to FY19 and the average interest cost of states have mimicked this movement in
direction though not magnitude as the average interest cost has declined from 7.36% in FY15 to
7.04% in FY19(RE).
On the other hand, the average interest cost for the centre declinedsteeply from 7.21% in FY14 to
6.98% in FY15, but has largely been flat during FY15 to FY19(RE).-For both the Central government
and the State governments, theaverage cost for FY19(RE) andbudgeted FY20(BE) has been lower
than FY14. -For state governments, this ratio had peaked at 7.36% in FY15 and had recorded its
lowest value of 7.04% in FY19(RE). -In case of the Central government, the average interest cost
peaked at 7.21% in FY14 and declined to its lowest level of 6.91% in FY17.
The sharp decline in the average cost of the state governments’vis-à-vis the Central government can
be attributed tothe longer tenures/duration of governments borrowings which in case of State
government areless than 10 years while for Central government a significant contribution is more
than 10 years. There is a positive relationship between interest rate and the duration of the
borrowing.
There are 16states which have the average cost more thanthe average for all states while 14
stateshave less than the average (7.04% for FY19(RE)).-The gap between the highest ratio of 9.50%
for Puducherry and lowest ratio of 5.11% for Mizoram is around 4.4%-Uttar Pradesh which has the
highest outstanding liabilities of Rs 5.6 lakh crs as of FY19(RE) has a lowaverage cost of 5.9%, which is
1.1% below the average for all the states.
Maharashtra on the other hand which has the second highest outstanding liabilities of Rs 4.4 lakh crs
as of FY19(RE) has anaverage cost of 7.75%, which is 0.71% higher than the average of all the states.
State-wise comparison of average interest cost
Economic Spotlight
17 October 2019
4. 9
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Economic Spotlight
