According to State Finances Audit Report No. 1 of the year 2023 released by the Comptroller and Auditor General of India:
“Borrowed funds should ideally be used for capital creation and developmental activities. Using borrowed funds for meeting current consumption and repayment of interest on outstanding loans is not a sustainable proposition.”
And yet the State Government’s Budgetary Allocation for the year 2023-24 euphorically rides high on hopes of further stretching its borrowing limit beyond the established thresholds set by the Goa FRBM (First Amendment) Act, 2014 which ideally stipulates a target debt-GSDP ratio of 25 %.
Therefore, it would only be apt to elaborate on the indicators that constitute the debt-GSDP ratio.
Gross State Domestic Product:
GSDP is defined as the total market value of all final goods and services produced within the state in a given period of time, usually a year.
It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, measured on monetary terms.
Significance of GSDP:
Gross State Domestic Product (GSDP) or State Income is the most important indicator for measuring the economic growth of a State.
These estimates of the economy, over a period of time, reveal the extent and direction of the changes in the levels of economic development.
The State Domestic Product is classified under three broad sectors such as Primary sector, Secondary sector and Tertiary sector and is compiled economic activity wise as per the methodology prescribed by the National Accounts Division, National Statistical Office, Ministry of Statistics and Programme Implementation, Government of India.
According to the Chief Minister’s Budget Speech, the GSDP growth in 2023-24 is expected to be 10.33% in comparison to 2022-23 in the State.
Public debt:
Public debt is the total amount, including total liabilities, borrowed by the government to meet its development budget.
Debt stock refers to the government’s accumulation of unpaid loans and other liabilities.
The Debt/GSDP Ratio:
The gross Public Debt of the state divided by the total Gross State Domestic Product and represented in percentage form would reveal the Debt-to-GSDP ratio in a given state.
A low debt-to-GDSP ratio indicates capacity to pay back debt and vice-versa.
GSDP vis-Ã -vis GDP:
GSDP is the market value of all officially recognised final goods and services produced within the State in a given period of time whereas the Gross Domestic Product (GDP) is the monetary value of all the final goods and services produced within a country’s borders in a specific time period, generally one year.
GDP is a broad measurement of a nation’s overall economic activity while the GSDP growth is an important indicator of the health of a State’s economy.
The trends in the annual growth rate of the State’s GSDP would reveal that the Industries sector is the primary driver of the State’s economy and its contribution to GSDP has increased by more than four per cent in the last five years. On the other hand, the contribution of Agriculture and Services sector showed a decline during the same period by 2.38 per cent and 2.39 per cent respectively.
Debt management:
Debt management is the process of establishing and executing a strategy for managing the Government’s debt in order to raise the required amount of funding, achieve its risk and cost objectives and to meet any other sovereign debt management goals that the Government may have set through enactment or any other annual budget announcements.
The total outstanding debt of the State Government and its rate of growth during the period 2016-21 reveals an average debt-to-GDSP ratio of 28.18% during the previous five years from 2016-21.
Extrapolating this average debt-to-GDSP ratio would reveal a percentage change of 10.56% as against the debt-to-GDSP ratio for the F.Y. 2020-21.
At the projected rate of increase of 10.56% in the debt-to-GDSP ratio as compared to the expected GSDP growth of 10.33% for the F.Y. 2023-24 the State’s economy could face a crippling deficit of not being able to fulfill obligations of repaying its public debt due to the fact that the rate of GSDP growth would only be useful in mitigating the project rate of increase in the debt-to-GDSP percentage year after year.
Another disturbing trend that is starting to manifest in the State’s seemingly static economy is the decrease in the percentage of Repayment of principal on total borrowings.
While the average percentage of Repayment of principal on total borrowings for the previous five fiscal years ranging from F.Y. 2016-21 has been hovering at around 32.18 %, the alarming cause for concern arises when the percentage of Repayment of principal on total borrowings for the financial year 2020-21 dropped to 16.37%. Even though this drastic change could be attributed to the Coronavirus Pandemic, the rippling effects could be expected to further enlarge the State’s economic deficit since the repayment capacity had dropped by almost 50% during the F.Y. 2020-21.
Resultantly, it could be hypothesised that the State’s double engined growth may merely be driving along the parallel service lane of mitigating its debt borrowings since the State’s outlay for head-wise expenditure during the F.Y. 2020-21 revealed that repayment of borrowings constituted 27% of its net expenditure while interest payments trailed closely at 11% of the net total expenditure.
