States may not borrow as much as they wanted. But that may not be a problem.

So far in FY24, states have raised about 9.76 trillion of the targeted 10.88 trillion, according to data from Reserve Bank of India (RBI)..

The more-than-expected proceeds from goods and services tax (GST) and release of a large chunk of 50-year interest-free loans from the Centre in the current fiscal have likely given states the financial space without having to raise more from the markets, said a finance ministry official, who spoke under the condition of anonymity..

In addition, as of 31 December 2023, (Q3, FY2024), the Centre had released about 60,104 crore in interest-free, capital expenditure loans to states, out of the 80,000 crore earmarked for this fiscal year, according to finance ministry data..

A lower (interest) rate is driving states to borrow during the final quarter of the fiscal year as the central government borrowing has been front-loaded (borrowings being made in the first few quarters), said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap LLP, a financial advisory firm..

According to a recent India Rating report, the aggregate fiscal deficit of 26 states is estimated to shrink to 3% of GDP in the next fiscal (FY25) from 3.4% in FY24, with states borrowings being primarily used for capital expenditure during the period..