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India’s 10 Most Indebted States

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Debt is not bad. Many firms raise large chunks of it in their growth and expansion phases. Some ease out of it with time. Others struggle. But while the stakeholders – banks, financial markets and shareholders – can technically put pressure on a firm to course-correct, it’s not the same or as simple with the States of India.

 

So how do the States of India measure up on their debt outstanding and ability to service it? IndiaSpend’s Dhritiman Gupta looks at debt and debt servicing capabilities of the major states and comes away surprised by some of the findings.

 

For one, states like Maharashtra may lead the league tables for indebtedness but show far more promise as financial entities. To be fair, this might be intuitively known to many. What may not be known is that states like Punjab, Rajasthan and Uttar Pradesh have the highest debt to GDP ratios. This means they are borrowing way beyond their ability to service the interest.

 

Bengal Comes In Third

 

The only non-surprise is West Bengal, the third most indebted state in the country and the worst when it comes to ratio between income and its liabilities. Another worrying aspect is the rate of growth in debt. As the tables show, Haryana, Karnataka and Tamil Nadu have accumulated debt at staggering rates in the last three years.

 

Interestingly, among the top 5 most indebted states, only Maharashtra and Gujarat are considered more `industrialised’. West Bengal, Andhra Pradesh and Uttar Pradesh are under-developed, with at least 70% of its population in agriculture.

 

It’s also useful to look at the rate at which some states are accumulating debt. Uttar Pradesh, West Bengal, Rajasthan, Bihar and Goa have been careful about raising debt, at least in the last year – at below 10%. While Chattisgarh and Haryana topped the charts by raising debt at the rate of 20% and 18.3% respectively.

 

66% Debt Growth For Haryana

 

Equally, Chattisgarh and Haryana have the lowest debt to GDP ratios and have thus the freedom to borrow more (IndiaSpend is not analysing the areas where the funds raised are being used or the reasons behind it, at least in this round). It’s also possible that some states are borrowing more aggressively to fund development but some states like Bengal are borrowing to some extent to only meet past liabilities.

 

The states that have added the most debt, proportionately or above 40%, are West Bengal, Tamil Nadu, Karnataka and Haryana. Haryana takes the cake with a whopping 66% rate of growth of debt since 2009.

 

Now, let’s look at the debt positions of the 17 `Non-Special Category’ States. The states are ranked in a descending order of the amount of outstanding debts at March end 2012. Budgetary Estimates (BE) are figures that are budgeted for and Revised Estimates (RE) are the final numbers.

 

States With Outstanding Debts

 

State Ranks 2009 2010 2011(RE) 2012(BE) Growth % in 2012 Growth % from 2009 till 2012 (BE)
1. Maharashtra 1,86,670 2,03,440 2,25,200 2,48,460 10.32 33
2. Uttar Pradesh 1,92,770 2,06,430 2,24,010 2,44,510 9.15 26
3. West Bengal 1,50,430 1,75,510 1,93,410 2,11,590 9.30 41
4. Andhra Pradesh 1,10,050 1,23,680 1,36,010 1,53,840 13.10 39
5. Gujarat 1,09,860 1,23,470 1,38,590 1,52,890 10.31 39
6. Tamil Nadu 86,150 1,01,710 1,13,830 1,32,590 16.48 54
7. Rajasthan 84,240 91,750 99,190 1,07,230 8.10 27
8. Karnataka 65,220 84,530 90,240 1,01,720 12.72 56
9. Kerala 67,010 75,450 82,610 93,010 12.50 39
10. Madhya Pradesh 60,310 67,920 73,830 82,820 12.10 37
11. Punjab 61,530 67,780 74,020 82,350 11.25 34
12. Bihar 55,780 59,510 64,350 70,660 8.90 27
13. Haryana 33,500 41,020 46,930 55,560 18.3 66
14. Orissa 43,900 45,720 48,290 53,290 10.35 21
15. Jharkhand 24,020 26,980 29,310 33,900 15.60 41
16. Chattisgarh 15,030 16,250 17,120 20,560 20.09 37
17. Goa 7,150 8,430 9,090 9,760 7.3 37

 

(Figures in Rs Crore)

 

Source: RBI Report on State Budgets 2011-12

 

Debt-GSDP Ratios

 

As we mentioned earlier, debt itself is not bad if the state has the economic activity to sustain it. Now, let’s look at debt as a percentage of Gross State Domestic Product (GSDP). In simpler terms, this is the gross income of the state.

 

During 2010-11(RE), all 17 States mentioned in the table registered a decline in debt-GSDP ratios. Which means their growth was high or their debt levels were reducing. Bihar was the best off, followed by Rajasthan and Chattisgarh. West Bengal had the highest Debt-GSDP ratio in 2010-11(RE) followed by Uttar Pradesh and Punjab.

 

However, in 2011-12 the Debt-GSDP ratio is likely to increase for some states – Madhya Pradesh, Jharkhand, Haryana, Chhattisgarh, Tamil Nadu and Andhra Pradesh. Here is the ranking in descending order of the state’s debt as a percentage of GSDP in 2012 (BE).

 

Debt-GSDP Ratio

 

State Rank 2009-10 2010-11(RE) 2011-12(BE)
1. West Bengal 44 42 39.9
2. Uttar Pradesh 39.8 38.1 37.6
3. Punjab 34.7 33.4 33.4
4. Rajasthan 35.9 32.6 32.1
5. Madhya Pradesh 31.3 30.8 31.1
6. Jharkand 28 27.3 30.9
7. Kerala 32.8 31.1 30.4
8. Bihar 34 30.2 28.9
9. Goa 32.6 30.2 28
10. Gujarat 28.8 26.9 26
11. Andhra Pradesh 26 24 25.6
12. Orissa 28.2 25.9 24.9
13. Karnataka 24.5 22.6 22.4
14. Tamil Nadu 21.5 20.8 21.6
15. Maharashtra 22.6 21.9 21
16. Haryana 19.5 18.9 19
17. Chattisgarh 14.8 13.2 15

 

(Figures are Debt as % of GSDP)

 

Source: RBI Report on State Budgets 2011-12

 

Going from absolute debt levels to debt in relation to GSDP or income, we can see the league table shift. Maharashtra, despite huge debts has been able to control its proportion to the GSDP. In fact it is doing better than 14 other states.

 

Interestingly, the states which have registered a lower growth rate of debt in 2011-12-Uttar Pradesh, West Bengal, Bihar, Rajasthan and Goa- are ones which have higher Debt as a percentage of GSDP. The lowest ranked among them is Goa at 9thplace with 28%.

 

These states have registered lower growth rates of liabilities in 2011-12, possibly in a conscious effort to keep the Debt-GSDP percentage down. On the other hand states like Haryana and Chhattisgarh-ranked 16th and 17thin – could afford to take higher loans thereby registering higher growth rates of debt.

 

Spending On Interest Payments

 

Now, when you borrow money, you obviously pay back the principal with interest. As the overall debt levels balloon, so do the repayments.  A few Indian states are exhausting 18% and 20% of their expenditure in interest costs.

 

More recently, in 2010-11, the interest payment to revenue expenditure ratio reduced for all states except Haryana, with the largest gainers being Andhra Pradesh and Jharkhand with a 2.3 percentage points reduction.

 

The states of West Bengal, Punjab and Gujarat have been consistently spending huge amounts on interest payments. In 2011-12 (BE) these states were estimated to have Interest Payments- Revenue Expenditure of 18% and above. The corresponding figures for Maharashtra are also high at 14.4%.

 

Bihar Doing Well

 

The surprise element, however, is Bihar- ranked 16th.  Going by the budget estimates (BSE), Bihar could keep interest payment-revenue expenditure below 10%, whereas cousin West Bengal has a figure as high as 20.4%.

 

The worrying fact, however, is that the interest payment – revenue expenditure could rise to over 2010-11 figures for 6 states-Karnataka, Andhra Pradesh, Haryana, Maharashtra, Gujarat and Punjab. All these states except Haryana had registered declines the previous year.

 

Interest Payment-Revenue Expenditure Of States

 

State Rank 2009-10 2010-11(RE) 2011-12(BE)
1. West Bengal 22.7 21.7 20.4
2. Punjab 18.3 16.1 18.4
3. Gujarat 17.7 16.5 18.1
4. Rajasthan 16.9 15.8 15.4
5. Maharashtra 14.9 13.8 14.4
6. Kerala 17.0 15.4 13.9
7. Haryana 10.8 11.1 12.6
8. Uttar Pradesh 13.4 12.2 11.9
9. Andhra Pradesh 14.0 11.7 11.8
10. Goa 13.8 12.8 11.4
11. Orissa 12.0 12.0 11.1
12. Karnataka 11.0 9.9 10.7
13. Tamil Nadu 11.2 10.6 10.3
14. Jharkhand 13.0 10.7 10.0
15. Madhya Pradesh 12.4 10.6 9.9
16. Bihar 11.3 10.2 9.5
17. Chhattisgarh 6.3 5.6 5.3

 

(Figures are Interest Payments as % of Revenue Expenditure)

 

Source: RBI Report on State Budgets 2011-12

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