Odisha has the highest proportion of rated entities defaulting in India, followed by those in Chandigarh, Telangana, Chhattisgarh and Uttarakhand. Nearly 35% of rated entities in these states have defaulted on average over a three years period, classifying these states as most stressed in this regard. Furthermore, every 4 out of 10 rated entities have defaulted in the states of Odisha and Chandigarh during the time frame. Closely followed by Chhattisgarh and Uttarakhand with over 2 entities defaulting among every 10 rated.

States of Madhya Pradesh, Gujarat and Rajasthan have the lowest proportion of entities that have defaulted over a three years period. The average proportion of entities defaulting is less than 1 out of every 10 rated. Not surprisingly, industrialized and wealthier states such as Maharashtra, Tamil Nadu, Delhi, Karnataka and Gujarat collectively average less than 1 in this regard and are categorized as moderately stressed and least stressed as compared to their peers. Overall, a little over 7% of rated entities in the mentioned industrial states have defaulted.

It’s a mixed result for north eastern states as Meghalaya, with an overall default proportion of 24% is categorized as highly stressed. Assam on the other hand, with a default proportion of just 2.4% over a period of three years is however classified in the least stressed category. Among union territories, Delhi is probably the best performing sub-sovereign among its peers. The national capital territory is classified under the moderately stressed category with a default proportion of 8.6%. Pondicherry as well as Dadra and Nagar Haveli are however under the most stressed and stressed category, with the latter recording a default proportion of over 19%.

Unexpectedly, poorer and relatively underdeveloped states such as Bihar and West Bengal have recorded stellar performance in this study and are categorized in moderately stressed and least stressed category. We believe this to be caused by the presence of a higher number of state-owned enterprises (vis-à-vis private rated entities) in the case of Bihar and several blue-chip companies head quartered in Kolkata, in the case of West Bengal. The overall default proportion for Bihar and West Bengal is recorded at 6.7% and 10%, respectively.

Large and populace states such as Uttar Pradesh and Madhya Pradesh find themselves in the moderately stressed and least stressed categories with a default proportion of 13% and 6.8%, respectively. North Indian heavy weights such as Punjab, Himachal Pradesh and Haryana are also found to be under significant strain considering their default proportions are within the range of 13.5% and 16.7%. High stress levels in sectors such as Textiles, Agriculture & Allied, Transport & Logistics and Infrastructure are likely cause given the concentration in these states.

Incidentally, most states with highest defaults are among India’s fastest expanding in terms of GDP growth. Even though a correlation exercise was not attempted, it was found that states such as Andhra Pradesh (+11.2%), Telangana (+10.2%), Odisha (+8.8%), Meghalaya (+8.3%) and Chhattisgarh (+7.5%) are contributing to a majority of India’s overall expansion and adding incremental thrust.

Methodology

In this study to asses state wise defaults among rated entities across the country, we categorized 28 Indian states in four categories, namely, Most Stressed (led by Odisha), Stressed (led by Andhra Pradesh), Moderately Stressed (led by Uttar Pradesh) and Least Stressed (led by Madhya Pradesh). A public sample of over 3000 rated (long term) entities, including those defaulting over a three years period was then analyzed. Each category consists of seven states of varying size and level of economic development. On average, the seven states in the most stressed category record a default proportion (of rated entities) at 35%, followed by those in the stressed category with a proportion of 16.6%. The other two categories consisting of moderately stressed and least stressed states, record a proportion of 10% and 5.1%, respectively.