Saturday 20 Jul 2024

Riddled in public debt, riding on hope

Borrowing in the form of Internal Debt by the State Government could provoke a collapse of the financial system in the State

Adv Moses Pinto | FEBRUARY 10, 2024, 12:48 AM IST

The divide of explication between the State’s already compromised borrowing power in contrast to the hopefulness of the Chief Minister in realising a truly Viksit Goa, seems to be a rift as wide as a Valley.

The Annual Financial Statements 2024-25 which were released by the Government of Goa on the 8th of February, 2024 and which are easily accessible to the general public through the official Goa Budget website, deserve critical attention from an economic standpoint.

But before any audit of the state’s financial health may be attempted, it would be appropriate to enunciate a few basic concepts of macroeconomics that would enable a more accurate understanding of the financial indicators and ratios at play in Goa’s economy.

Financial Leverage:

According to Adam Hayes (2023) in his article titled: ‘What Is Financial Leverage, and Why Is It Important?’, which has been published on Investopedia - 

“Financial leverage results from using borrowed capital as a funding source when investing to expand the firm’s asset base and generate returns on risk capital. Leverage is an investment strategy of using borrowed money—specifically, the use of various financial instruments or borrowed capital—to increase the potential return of an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.”

Public Debt:

According to the Fiscal Observatory of Latin America and the Caribbean (OFILAC), Public Debt has been defined as:

“Public debt refers to the amounts owed by the different levels of government and used to finance public deficits resulting from a higher level of programme spending to budgeted income.”

Capital Receipts:

On the Business Standard website (2023), the webpage entitled: ‘What are Capital Receipts’ expounds the concept as follows:

“Capital receipts are receipts that create liabilities or reduce financial assets. They also refer to incoming cash flows. Capital receipts can be both non-debt and debt receipts. Loans from the general public, foreign governments and the Reserve Bank of India (RBI) form a crucial part of capital receipts.”

Internal Debt of the State Government:

According to the India Budget official Website at Annexure - 3, the following explanation has been given:

“Internal Debt comprises loans raised in the open market, special securities issued to the Reserve Bank, compensation and other bonds, etc.”

Goan Scenario:

In going through the financial accounting data contained in the Annual Financial Statement 2024-25, the following observations would be pertinent:

The Total Capital Account Receipts rose from Rs. 262990.54 lakhs during the financial year 2022-23 to Rs. 440573.49 lakhs as the revised estimate for the financial year 2023-24. These figures represent a rise of 59.7% of the state’s capital that is being serviced from sources other than revenues and is a figure that is required to merely finance the long standing public deficit.

Further, it is even more astounding to note that out of the Total Capital Account Receipts of Rs. 262990.54 lakhs for the financial year 2022-23, the ratio of Internal Debt of the State Government in proportion to the Total Capital Account Receipts represented a substantial amount equivalent to 78.14 % of the total receipt. This percentage would represent a very strong dependency upon fund borrowing by the State.

Consequently, the ratio of revised estimates of Internal Debt of the State Government for the financial year 2023-24 in proportion to the revised estimates of the Total Capital Account Receipts, projects a percentage of 86.25% as the reliance of the State of Goa upon borrowing to finance its public deficit.


How can it be said that the economic health of the State is witnessing “double-engined” growth, when in fact the accounting figures reveal steadily growing percentages of internal debt by the State Government. Surely, it would not be the intention of the Finance (Budget) Department, Government of Goa to drive the train of Goa’s economy over a cliff but the macroeconomic perspective surely seems that way.

State Revenues:

In observing the Revenue Account Receipts of the State which have been declared in a separate Annual Financial Statement for the year 2024-25, the impetus for growth of revenue collection streams through tax revenues also seems to be lacking in implementation of efficiency.

For the Taxes on Income and Expenditure, the percentage rise in tax receipts shows a meagre increase of 14.2% from the actuals for the financial year 2022-23 as against the revised estimates for the financial year 2023-24, which does not inspire confidence in a post pandemic recovery scenario.

Interestingly, and in keeping with the real estate trend prevalent in Goa, the Taxes on Property and Capital Transactions rose steadily from the financial year 2022-23 as against the revised estimates for the financial year 2023-24, while witnessing a percentage increase of 20.9% in revenue earnings for registration transactions pertaining to Stamps and Registration Fees.

Prudence of Wisdom:

Borrowing in the form of Internal Debt by the State Government could provoke a collapse of the financial system in the State, leading to systemic crisis as an impending liquidity crisis can cause a credit crunch thus affecting businesses as well as consumers in the State as obtaining loans would become significantly more difficult due to lowering of the States credit rating in the eyes of financial institutions.

This kind of situation would usually arise when the state excessively leverages its assets in order to contract a substantial proportion of debt and consequently would be unable to even service the interest on the debt incurred. 

Would placing greater importance upon infrastructure development in the State be justified when the Budget deficit is so exorbitant that the extent of public spending surpasses the extent of income in the State’s economy?

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