OVER the years, the gross fiscal deficit of state governments has been on the rise. Nearly 60 per cent of the deficit is on account of revenue deficits arising mainly due to expenditure overruns.

State government bonds represent the market borrowings used in financing this deficit. The state government bond issuance is currently managed by the Reserve Bank of India along with the central borrowings. The states have the option to manage their own market borrowings to the extent of 35 per cent of total market borrowings.

Can I invest in these securities?
No. You cannot invest directly.

Mainly banks, provident funds, mutual funds and insurance companies like the Life Insurance Corporation invest in state government securities.

So, by investing in instruments issued by these companies, you will have an indirect exposure to state government securities.

Returns given by state government securities?
Today, the coupon rate for state government securities is fixed at 25 basis points above central government securities.

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e-mail: Team Wealth

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