Higher royalty receipts and an increase in own tax revenue have kept Odisha away from market borrowings in the first half of the current financial year, said a state government official from Odisha’s finance department.
Since the start of this financial year, Odisha has not yet announced any borrowing through state development loans (SDL). Usually, to manage the finances of the state and fund the fiscal deficit, most states issue bonds to raise funds and these bonds are called SDLs.
"The revenue collection of the state has gone up because many companies won the mining auction with more than 100% premium, which is a source of non-tax revenue for the state," an official said.
"Odisha state is a major iron ore belt and has been a beneficiary of rising commodity prices. Hence receipts from the mining sector have been a key factor why the state hasn’t resorted to borrowing yet," said Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company.
Odisha's finances
According to the state government official, Odisha's own tax revenue grew 20% during the first six months of the current financial year due to a spurt in economic activities after the relaxation of Covid restrictions.
The state’s total expenditure has remained lower than total revenue in every month since the start of this financial year.
According to the monthly fiscal report published by the Finance Department, the Government of Odisha showed total revenue of Rs 42,406.26 crore in July, Rs 31,406.10 crore in June, Rs 20,319.07 crore in May, and Rs 9,327.39 crore in April.
On the other hand, total expenditure stood at Rs 37,866.48 crore in July, Rs 28,696.87 crore in June, Rs 16,429.44 crore in May, and Rs 8,899.08 crore in April.
"Odisha’s state GSDP is relatively smaller. Financials seem fine. The fiscal deficit is pegged at 3% for FY23. On the revenue side, the state has a surplus — revenues have been exceeding expenditure so far," Iyer added.
According to experts, mining revenue contributes up to 90% of the state's own non-tax revenue and substantial mining revenue from the auctioned blocks has strengthened the state’s economy in recent times.
The Odisha government gets a premium or a percentage of the price of the iron ore set by the Indian Bureau of Mines each month. Many companies had won the mining auction paying more than a 100% premium, according to the officials.
Odisha is among the country’s mineral-rich states and tops in the production of minerals such as iron ore, bauxite and coal.
Also read: Spread between 10-year SDLs, G-Secs narrows to historical low on high demand from investors
Overall SDL borrowings
In the first half of the current financial year, states and union territories borrowed Rs 2.71 lakh crore, sharply lower than the amount announced in the indicative borrowing calendar. States and Union territories have announced borrowings worth Rs 4.02 lakh crore during the April-September period through SDLs.
The borrowing was 42% lower than in the first quarter and around 25% in the second quarter.
The fall in borrowings by states was attributed by experts to higher goods and services tax collections and an increase in revenue after economic activity picked up after the relaxation of Covid restrictions.
In the October-December quarter, the borrowing amount announced was the highest, at Rs 2.53 lakh crore.
Also read: Benchmark bond yields ease as crude oil prices extend losses
Outlook
Most commodity prices have come down after rising sharply over the last few months. Experts believe that if the fall is sustained then the state's revenue will be affected.
"We may tap the market in the second half if commodity prices continue to rise, but the amount may not be very substantial," said the state official quoted earlier.
He added that the impact of the fall in commodity prices is usually felt after 2-3 months, but this time the pressure was being seen early. But, due to high cash balances and other resources, the state was well equipped, he said.
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