At a time when the public debt is mounting on the state’s exchequer, the Bharatiya Janata Party government in Maharashtra has decided to fund big ticket infrastructure projects through off-budget borrowings keeping them outside the balance sheet of the government. The government’s fiscal strategy statement for 2017-18 reads, “It is expected that loans for various Metro projects being implemented by the Mumbai Metropolitan Region Development Authority, the Mumbai Trans-Harbour Link (MTHL) and Mumbai, Pune, and Nagpur Metro projects undertaken by the Maharashtra Metro Rail Corporation will be raised through multilateral and bilateral financial institutions. It is expected to complete these projects without creating financial liability on the state government and without schedule delays to avoid cost overruns.”
State’s fiscal managers said that as part of the new expenditure policy, the government aims at availing sizeable off-budget external commercial borrowings for infrastructure projects relating to mass urban transport systems.
While the past approach has been for the government to borrow the money and provide funds to the nodal agencies implementing these projects, the budget document states that the plan now was to borrow funds through the Mumbai Metropolitan Region Development Authority (MMRDA) or Special Purpose Vehicles (SPVs).
Metro rail projects are being planned to better transport in the cities of Mumbai, Navi Mumbai, Thane, Pune, Nagpur, and Aurangabad. Last year, Union Finance Minister Arun Jaitley had spelt out a similar route for infrastructure projects taken up by the Ministry of Railways and the Ministry of Road Transport in the Union Budget, an approach that had invited criticism from former Union Finance Minister P Chidambaram.
The government’s liabilities or unpaid debt burden will cross the Rs 3.71 lakh crore mark this March end, and is projected to swell further to Rs 4.13 lakh crore in 2017-18. Amid burgeoning subsidies and a ballooning non-productive expenditure, the state’s debt burden has spiralled 164 per cent since 2007-08, when it was Rs 1.42 lakh crore.
While the off-budget borrowing route will be used for ongoing big-ticket projects, the government has decided to raise funds for future projects through land securitisation. The budget document concedes that off-budget borrowings for infrastructure projects may result in a substantial increase in the contingent liabilities of the state, but has defended the move. “Such an approach will avoid thin spreading or paucity of funds, enabling faster completion of projects,” said a senior finance department official. “If the projects are executed without time and cost overruns, they will yield adequate revenues allowing the concerned SPV to service debt without creating financial liability for the state government,” added the official. Faced with a cash shortage, the government has also decided to prioritise additional investments in ongoing development and infrastructure projects. Finance Minister Sudhir Mungantiwar also announced on Saturday that the government would attempt to curtail nonproductive expenditure by reviewing the staffing pattern across various departments, using direct bank transfers for subsidy payments, renting premises instead of construction of new ones, and streamlining the distribution of grants.
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