Cabinet Decisions: Centre allows states to get direct foreign funding for infra projects

State governments to furnish guarantee for such loans, the Centre will provide counter guarantee

By: ENS Economic Bureau | New Delhi | Published: April 20, 2017 1:56 am

THE GOVERNMENT on Wednesday decided to allow “financially sound state government entities” to borrow directly from bilateral overseas lending agencies like Japan International Cooperation Agency (JICA) to fund infrastructure projects. The decision will benefit important projects like the Mumbai Trans-Harbour Link (MTHL), said finance minister Arun Jaitley, briefing mediapersons on the decisions taken by the Union Cabinet. The government “has approved the policy guidelines to allow financially sound state government entities to borrow directly from bilateral ODA (Official Development Assistance) partners for implementation of vital infrastructure projects,” said an official statement.

Currently, the Central government receives external development assistance on behalf of the state governments for state sector projects/ programmes. The existing rules do not allow state government entities to borrow directly from external agencies. The Mumbai Metropolitan Region Development Authority (MMRDA), a state government entity, can now borrow directly from JICA for implementation of the MTHL project. The estimated project cost is Rs 17,854 crore, out of which the loan from JICA is expected to be Rs 15,109 crore, said the statement.

While state governments will furnish guarantee for such loans, the Centre will provide counter guarantee. Such direct borrowings by state entities would not be counted in the calculation of their respective fiscal deficits, under the states’ Fiscal Responsibility and Budget Management (FRBM) laws. “The intention behind allowing states direct funding for big projects was that states’ budgets are under pressure to provide funds for welfare schemes and other schemes. As of now, the international funding gets counted in their FRBM, then they can’t take extra funds for infrastructure projects … This way, states will directly get money for infrastructure projects and it won’t be counted in their FRBM limits.

This will certainly help infrastructure creation and major projects in states,” said Jaitley. Several state agencies have funding requirements for infrastructure projects, and borrowings by the state government for such projects may exhaust their borrowing limits set under the FRBM laws. But now, the state entities can directly borrow and repay the loan, without burdening the state exchequer.

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