Maharashtra, the state worst-hit by the Covid-19 pandemic in the country, has partially lifted the freeze on capital works in a bid to stimulate economic growth. In an order issued on Wednesday, the Uddhav Thackeray government announced the easing of curbs it had previously imposed on development spend.
Projecting the economic situation to remain gloomy this year, and anticipating a sharp erosion in its own revenues, the government had on May 4 stayed all new works except “operational expenses” for Covid-19 control measures. Barring procurement of infrastructure and items required for combating the pandemic, it had ordered all departments to withhold tenders for new purchases and approvals for new development works.
As per the May 4 order, only five departments – public health, medical education, food and drug administration, food and civil supplies and relief and rehabilitation – were authorised to commit to new spending, which was also restricted to only purchases for combating the outbreak.
But on Wednesday, state Finance secretary Manoj Saunik issued an executive fiat permitting all departments to sanction new development works permissible under the Local Area Development fund allocated to legislators. In March, Finance Minister Ajit Pawar had increased the annual allocation of this discretionary fund from Rs 2 crore to Rs 3 crore per legislator.
The order also stated that the spend curbs will not be applicable for various development works funded under the Rural Infrastructure Development
Fund (RIDF) scheme of the National Bank for Agriculture and Rural Development (NABARD).
With the government forced to borrow to meet its monthly wage bill, an expert committee formed by Uddhav for economic revival has recommended funding of rural road and irrigation works through borrowings at 3.5 per cent interest under the RIDF.
With the government taking recourse to off-budget borrowings for all big-ticket infrastructure projects – including the Mumbai-Nagpur Samruddhi Corridor and the Mumbai Metro rail projects – to keep them off its balance sheet, the department also clarified that the spend curbs won’t apply to projects being funded through such off-budget borrowings.
After presenting a Rs 4.34 lakh crore Budget for 2020-21 and an increased allocation of 4.1 per cent over the revised estimate of 2019-20 in March, revenue losses due to the lockdown had forced the state to impose a 67 per cent cut in development (scheme) spend in May.
This is the deepest ever cut in expenditure since Maharashtra’s formation. In his Budget speech for 2020-21, Pawar had estimated a total capital outlay (spending which leads to asset creation) of Rs 45,124 crore, but the prolonged lockdown and spend curbs have meant that the target is unlikely to be met.
With the state’s revenue getting a leg-up in June, the government had also released a tranche to write off farm loans of eligible farmers under its waiver scheme. It has partially lifted the freeze on department transfers.
The government’s mop-up in June was Rs 19,200 crore as against Rs 10,000 crore in May and Rs 11,200 crore in April. A senior finance department official, however, clarified that the cap of 75 per cent of budgeted amount will continue for administrative expenses.
Departments have been asked to prioritise spending on committed non-developmental liabilities, including salaries, wages, pensions and servicing of debt. A senior official said that the new relaxations were aimed at demand recovery.
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