Maharashtra move to limit debt

By Mahesh Vijapurkar

MUMBAI, MARCH 29. After decrying the populist methods of the previous Shiv Sena-BJP Government in Maharashtra, which included enormous borrowings from public increasing the debt service burdens substantially, the ruling Congress(I)-NCP combine has moved interestingly in the direction of limiting the ``stock of debt to that percentage of the State Domestic Product which can be conveniently serviced from the State's revenues''.

The debts are so enormous that from 1998-99, the outgoings on interest, salaries and subsidies have been overstripping the total revenue and from the peak of 1994-95, the percentage of borrowings used for capital expenditure had been sharply on the decline.

These, by all accounts, are manifest indices of a debt trap. Right now, borrowings - though most have gone on infrastructure - are not seen as generating sufficient returns to even service debt. If that is done, as proposed in the recent budget by the State Finance Minister, Mr. Jayant Patil, the Government would be redeeming its pledge to end - or limit - such ``profligacy'' in spending or borrowings. Maharashtra recently has had its ratings lowered by credit rating agencies and the new regime will have to address this sooner than was thought required. Borrowings, of course, have not ended.

Mr. Patil has admitted that handling debt - raising and servicing it - ``is one of the biggest challenges to the macro-economic management in the medium term''. The previous Government had stepped up borrowings to finance projects, but ``with emphasis on starting new works rather on completing them'' which led to buoyancy in revenues while the new Democratic Front Government is forced to go in for raising debt to complete them without benefits in the medium term.

Maharashtra is in a fiscal fix, because the need to raise more funds without benefit to the economy, in the immediate phase, and revenue makes the Government's finance's ``vulnerable - costs will rise without a corresponding increase in revenues''. Therefore, the new Government will ``move to limit the stock of debt''. Sources in the Government admit that though the intent is good it is a hard promise to keep as no dispensation can resist the temptation for populist schemes.

The budget-making process is being sought to be changed in the future by Mr. Patil, a young techno-entrepreneur with a combative political heritage within his family and who has been in touch with the Andhra Pradesh Chief Minister, Mr. Chandrababu Naidu, at the behest of the NCP leader, Mr. Sharad Pawar.

They can communicate with each other well and the Andhra Pradesh's administrative methods are being studied though some on the Congress(I) side here are contemptuous about it. The former Union Home Secretary, Mr. Madhav Godbole, who had brought in zero-based budgeting during his earlier tenure in the State, has been brought in work on a new accounting code ``which will need to meet the requirement of the legislative procedure as well as potential investors''. By this, Mr. Patil means reforms which will have disclosure norms so that all liabilities and assets of the Government are recognised properly and provided for. That is to make it more transparent.

The future budget documents, if this proposal works, would be to ``provide better information about the impact of Government schemes and expenditure.''

Not only that, a former Chief Secretary, Mr. Sharad P. Upasani - now practising corporate law - has been asked to head a three- member Board for Financial Managerial Restructuring to speed up decision-making and implementation of processes to restructure, disinvest or close some of the loss-making State owned PSUs.

Send this article to Friends by E-Mail

Section  : Regional
Previous : SC clears decks for palmolein case trial
Next     : Check-dams perform a miracle