an incentive for states to perform better. to incentivize adoption of public ratings by the state governments for sdls, recently the reserve bank has decided that the initial margin requirement under laf for rated sdls shall be set at 1. 0 per cent lower than that of other sdls for the same maturity buckets. the public disclosure of sg ratings may also help in price differentiation of sdls. v. robust calendar while the central government is known to adhere to the borrowing calendar published every half year ( hy ), the sgs do not adhere to their quarterly calendars. such deviations leave the market to second guess their market borrowing. communication to the market as well as predictability is critical for credibility of the borrowing programme. vi. consolidation of debt the maturity pattern of sdls indicates that the redemption pressure would start increasing from 2022 - 23 and would continue to do so till 2026 - 27. the upsurge in redemption necessitates consolidation of debt. each state government will have to plan reissuances, buyback and switches based on their respective maturity profiles and cash flows. this will help create volumes, facilitate trading in the secondary market and benefit sgs by lowering yields. additionally, it will also even out redemption pressures and elongate the residual maturity of securities. due to efforts of reserve bank, several states have started reissuing sdl. we are also working with states on debt buy - backs and will take this process forward. vii. improved and timely disclosure of information : frbm legislations have significantly improved budget reporting, debt and fiscal data of states is not readily available. with a view to improve transparency and facilitate investors in taking informed investment decisions, there is a need to provide high frequency data on state finances in public domain. transparency includes having an independent audit of sub - national financial accounts, making periodic public disclosures of key fiscal data, exposing hidden liabilities, and moving off - budget liabilities on budget. conclusion : development and reforms are a continuous process. during the new millennium, state governments have taken several steps to improve fiscal and debt management. all the state governments have enacted their fiscal responsibility legislations incorporating the fiscal consolidation path. therefore, an institutional commitment to fiscal prudence exists. the traditional debt sustainability indicators are on a reasonably strong footing. there may not be any significant systemic risk on account of states ’ public debt. however, during the recent past there are indications of fiscal slippage. rising deficits

nearly 91 per cent of their fiscal deficit through market borrowings as against around 66 per cent by the central government. gross borrowings by state governments are projected to increase 28. 5 per cent year - on - year ( y - o - y ) during 2018 - 19. financing mix has changed : the changes in financing mix of states also contributed to increased reliance on market borrowings. pursuant to the recommendation of finance commission - xiv, almost all states have opted out of national small savings fund ( nssf ). as a result, reliance of state governments on market borrowings has increased substantially in recent years. increased redemptions, emanating from higher market borrowing of 0. 5 per cent of gfd consequent to fiscal stimulus provided to the states in the aftermath of the global financial crisis ( gfc ) 2007 - 08, also contributed to the rise in borrowings 2 ( chart 2 ). this has led to the pace of increase in market borrowings of state governments higher than that of the centre, which is more or less at stagnant levels over the past couple of years. the gross amount borrowed by states during 2007 - 08 was more than twice the amount raised in the previous year as states were sanctioned additional allocations by the centre to meet the shortfall in national small savings fund ( nssf ) collections during 2007 - 08. impact of higher borrowings : considering the large redemption pressure of around ` 1. 3 trillion, gross market borrowings are expected to cross ₹6 trillion in fy19, slightly more than central government gross borrowing numbers for the fiscal year. market share of state development loans ( sdl ) in outstanding has increased from 16. 59 per cent in 2008 - 09 to 29. 06 per cent in 2018 - 19 as against decrease in share of goi from 83. 41 per cent ( g - sec & t - bills ) to 70. 94 per cent during the same period. although market borrowings of the centre and the state governments have been managed successfully by reserve bank, the increasing reliance on market borrowings by states have raised concerns both from the supply and demand side and need to be managed so as to minimise any adverse effects on yields. i would highlight some of these concerns. i. hardening of yields : increased reliance of centre and states on market borrowings led to an oversupply of government paper in the g - sec market and contributed to hardening of sovereign yields. this results in a spiral, whereby increased