ICRA awards “A” Category Status to Telangana
Vanam Jwala Narasimha
Rao
(ICRA rating helps Telangana in getting low-cost
debt
Premier rating agency has assigned
“A” category status to Telangana recently
The Hans India on 18th October 2015)
Telangana State has gained 'A' category status in the
rating of India Credit Rating Agency (ICRA). This is in recognition of state’s revenue
in terms of tax collection. This enables Telangana in getting priority in terms
of availing loan from the national and international agencies, with lower
interest rates as compared to the rates imposed on the states with lower
rankings. Credit rating is an assessment of
the credit worthiness of a borrower in general terms or with respect to a
particular debt or financial obligation. Credit assessment and evaluation for
governments is generally done by a credit rating agency like ICRA.
ICRA is an Indian
independent and professional investment information and credit rating agency
and was established in 1991. It has assigned a Structured Obligation (SO) rating to the Rs. 5,000 Crore
proposed long term debt programme to be raised by various entities of the
Government of Telangana State. An SO rating is specific to the rated issue, its
terms, and its structure. The rating assigned to the Debt Programme reflects
the credit profile of State Government as well as the integrity of and expected
adherence to the structured payment mechanism by the entity raising debt on the
strength of the Government guarantee.
The rating takes into account ICRA’s assessment of a
robust potential of the state’s own tax revenues on the back of its expectation
of higher consumption levels in the State, given the high per capita income of Telangana
of Rs.
95,361 compared to the National
average of Rs. 74,380 and a favourable industrial policy framed by state. ICRA estimates
that the leverage levels (equivalent to Debt + Guarantees) of Telangana
relative to its Gross State Domestic Product (GSDP) as well as Own Tax Revenues of the State are superior to a number of its peer States. On the
other hand, ICRA
also takes into account the spending commitments of the State like the farm
loan waiver, enhanced allocation of subsidised food and pay hike to the State
government employees, which may exert pressure on the State’s fiscal balances
in the near term.
While assigning the rating,
ICRA has evaluated various socio - economic factors and fiscal results including,
among others, the previous year’s revised estimates of and current year’s budget
estimates of government. ICRA relied upon various scenario analyses to test the
robustness of Telangana financial position. The State’s performance on various socio economic
indicators is mixed. While Telangana has a superior rate of urbanization (38.7%), the literacy rate (66.5%) in the State is
lower than the national average (74%).
The State’s revenue receipts
in 2014-15 for a ten month period stood at 16.5% of the GSDP, benefiting from a
superior Own Tax Revenues of the State (SOTR) as a proportion of GSDP (8.2%). Telangana
revenue receipts are expected to increase by 9.7% in 2015-16 led by a 31.4% expansion
in SOTR and 31.5% increase in the share of central taxes. Notably, government
of Telangana anticipates a contraction of 43% in grants to Rs. 12,823 Crore in
2015-16 from Rs. 21,721 Crore in 2014-15 revised estimates.
The share of Telangana in the inter se devolution of union taxes has been reduced to 2.437% for
the Fourteenth Finance Commission award period from 2.893% over the Thirteenth Finance
Commission’s award period. Nevertheless, the impact of the same is more than offset
by the increase in the aggregate share of States in the Union taxes to 42% from
32% during the aforementioned award period. Consequently, Government of India has
estimated that Central tax devolution to Telangana will increase by a robust 31.5%
to Rs. 12,823 Crore in 2015-16 from Rs. 9,745 Crore in 2014-15, which would
augment the resources of the State. On the other hand, the sharp contraction in
grants anticipated by Telangana in 2015-16 relative to 2014-15 is on account of
a reduction in both non-plan and plan grants.
Food and power subsidies together has enhanced the
entitlement of subsidised food and enlarged its scope by relaxing the
eligibility criteria for claiming subsidised food. This has resulted in state’s
estimated food subsidy outlay to expand by almost three times the estimate to
Rs. 2,200 Crore in current year. The power subsidy burden of Telangana is
estimated to increase to Rs. 4,257 Crore this year equivalent to 5.5% of the
revenue receipts of the State.
The quality of expenditure of Government of Telangana (defined
as capital outlay and net lending as a proportion of total expenditure) according
to ICRA is superior to most of its peer States. The State has accorded a
priority to the irrigation sector, as it estimates to spend a considerable 44% of the forecast capital outlay of Rs. 15,983 Crore
on various irrigation projects in 2015-16.
The bulk of the debt of the undivided State of
Andhra Pradesh has been apportioned between the successor States of Andhra
Pradesh and Telangana. Based on the same, ICRA estimated that the leverage
levels (equivalent to Debt +Guarantees) of Telangana relative to its Gross
State Domestic Product (GSDP) as well as Own Tax Revenues of the State (SOTR) are superior to a number of its peer States. End
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