For fiscal profligacy, see Maharashtra’s growth rate

In the case of cotton, for instance, till the mid-90s, the government of Maharashtra used to pay the farmers a little less than the market price, and so the scheme was profitable. Since then, however, it began paying them a lot more and, as a result of this, losses on the scheme jumped from a whopping Rs 522 crore in 1995-96 to Rs 772 crore in 1999-00.

And in the case of sugar cooperatives, the government guaranteed loans worth Rs 3,286 crore taken by these institutions — since Maharashtra is not really competitive in sugar production, most of these loans are beginning to devolve on the state government.

Not just sugar cooperatives, the Maharashtra government went into overdrive, guaranteeing the loans of all manner of state enterprises like the roadways corporation or the irrigation department. In 2000-01 alone, the Maharashtra government guaranteed loans of a total of Rs 20,000 crore. Since most of these loans have to be paid by the government, credit rating agency Crisil downgraded Maharashtra to default status recently.

The Maharashtra government, finance minister Jayant Patil said today, has planned major reforms, and is even going to introduce a fiscal responsibility bill in the winter session of the assembly, to curb expenditure. DA payments to bureaucrats have been frozen and no bonuses have been paid for the last two years. Cotton farmers have been told they will not get such high prices anymore, PSUs are being privatised, and water charges are being raised — between 1999-00 and 2002-03, salary expenses as a percent of revenue receipts are to fall from 64 percent to 52. And the losses of the Maharashtra State Electricity Board which were Rs 2,800 crore in 2000-01 were down to Rs 308 crore in 2001-02.

Yet, for all his optimism, even Patil acknowledged that the road ahead was a long and treacherous one. Apart from the obvious pitfalls of the coalition partners not allowing user-charges to be raised — last year, the government gave an additional Rs 745 cr subsidy to powerlooms and agriculture consumers — is the problem of the past sins being so great. According to the World Bank’s business-as-usual scenario, if nothing major changes in Maharashtra, the state’s debt-to-GDP ratio will rise from 23 percent right now, to a whopping 34 percent by 2005-06. Last year, Maharashtra was in ‘overdraft’ (special borrowing from the RBI) for 118 days — up from a mere 7 days in 1997-98. By 2005-06, if things don’t change, the state’s treasury will have no option but to just fold up.