Crisil downgrades Maharashtra, irrigation bonds

MUMBAI, Jan 4: Credit Rating Information Services of India Crisil downgraded Maharashtra on Monday due to rising quot;revenue and fisc...

MUMBAI, Jan 4: Credit Rating Information Services of India Crisil downgraded Maharashtra on Monday due to rising quot;revenue and fiscal deficit following Pay Commission liability and increasing debt servicing expenditure and reliance on market borrowings for financing of the Plan outlayquot;.

The State, which till recently enjoyed the highest credit rating, has been downgraded to A 8217; from AA -8216; thanks to the populist measures of the BJP-Shiv Sena government. Though A 8217; signifies adequate safety8217; for returns of investment in the State bonds, Crisil has expressed concern over deteriorating finances in the current fiscal.

Accordingly, the credit ratings on all debt programmes floated by special purpose vehicles SPVs of the State have also been lowered. Bonds issued by four SPVs 8211; Konkan Irrigation Development Corporation, Maharashtra Krishna Valley Development Corporation, Tapi Irrigation Development Corporation and Vidarbha Irrigation Development Corporation 8211; amounting to Rs 1,707 crore have beendowngraded to A 8217; from AA -8216;.

In a statement, Crisil 8211; an independent body rating financial instruments 8211; said the increased dependence on debt financing is due to the present government8217;s emphasis on rapidly setting up infrastructure facilities, especially irrigation and drinking water schemes in rural Maharashtra, necessitated by the ruling of the Krishna Water Disputes Tribunal.

quot;These factors are partly offset by the relatively strong economic structure of the State, healthy growth in non-tax revenues and healthy additional resource mobilisation measures undertaken by the State,quot; Crisil said. Maharashtra8217;s rating is now at par with Gujarat and Andhra Pradesh, which were upgraded to the A grade only recently by Crisil.

Crisil said Maharashtra8217;s gross fiscal deficit is budgeted to increase in 1998-99 to 3.8 per cent from 2.8 per cent in the previous year. The composition of the fiscal deficit has also deteriorated with revenue deficit expected to constitute 67.4 of gross fiscal deficit in 1998-99as compared to 13.7 per cent in 1997-98. The repayment obligations on the bonds are supported by the Maharashtra government through a tripartite agreement between the concerned corporation, the State and the trustees to the issue.

While Maharashtra Krishna Valley Development Corporation has raised Rs 1,277 crore through three bond issues, Vidarbha Irrigation Development Corporation has mopped up Rs 308 crore through two bond issues. Konkan Irrigation Development Corporation and Tapi Irrigation Development Corporation have raised Rs 31 crore and Rs 91 crore respectively.

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The four corporations are engaged in the implementation of the ongoing irrigation projects in Maharashtra. Since the corporations are unlikely to have adequate revenues in the short to medium term for servicing the interest and principal repayments on the bonds, the primary support for repayments has been provided by the Maharashtra government, through a tripartite agreement.

Crisil said in the medium term, Maharashtra8217;s finances woulddepend on its ability to control non-developmental expenditure especially debt servicing, reduce the size of plan outlays financed out of borrowings and augment its revenue base in order to neutralise the impact of the Pay Commission.

The rating agency said that though Maharashtra is in the forefront of industrialisation, infrastructure related to roads, railways and ports need to be improved to attract fresh investments. Additionally, the State government8217;s ability to attract investments, develop economic infrastructure and implement reforms in areas such as power, disinvestment of state-owned units would have a direct bearing on the fiscal strength of the State government and its economy.