STATES' BORROWING IN Q4

Why in the News?

Six states, including Andhra Pradesh, Karnataka, and Punjab, sought to borrow Rs 16,000 crore in the first weekly auction of January-March.
States anticipate record borrowing of Rs 4.13 lakh crore in the Q4 FY24, leading to concerns about higher supply of dated securities.

Potential Economic Ramifications:

Higher supply of state government securities alongside G-sec supply may weigh on state government bonds.
Borrowing costs for states likely to rise compared to the Centre.
Yield spread between 10-year state government loans and the benchmark 10-year G-sec is expected to widen further.
Concerns of higher supply of dated securities may lead to a steepening of the curve.
Weighted average cut-off of state government securities increased, leading to a rise in borrowing costs for states compared to the Centre.

Source: India Express

Key Terms

G-Sec

· G-Secs are tradable instruments issued by the Central or State Government acknowledging the Government’s debt.

· They include short-term Treasury Bills (maturity < 1 year) and long-term Government Bonds or Dated Securities (maturity ≥ 1 year).

Dated securities

· Dated securities refer to long term interest-bearing debt instruments issued by governments with a specified maturity date.

· Investors receive periodic interest payments until the maturity when the principal is repaid.

For example, government bonds, where investors earn interest until the bond matures, are considered dated securities

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