Govt may look to NRIs for funds

Bonds a likely option as domestic borrowings may not fully meet requirements

To fulfill the promise of completing irrigation projects on a war-footing, the new state government headed by Y S Rajasekhara Reddy may ultimately look forward to NRIs for financial support.

Though senior government officials seem to have suggested additional borrowings from domestic financial institutions as an immediate option, it may have to be supplemented greatly by other means to meet the full requirement, observers feel.

Raising money through bonds is an attractive proposition where the interest being offered on these bonds may still be lower than the low cost credit available in the domestic market.

Government bonds fetch about 5.7 per cent interest while the lowest possible credit available in the domestic market is about 7 per cent.

But the domestic market is already at a saturation point on this front as the response to recent bonds issued by the previous government was not encouraging.

"In such a case, the government could raise money from NRIs as they would find even 6 per cent rate of interest on the government bonds most attractive as they receive only 2 per cent interest on such investments abroad," a senior government official suggested.

The new Andhra Pradesh government headed by Y S Rajasekhara Reddy has set itself a Herculean task with regard to raising outlays irrigation for the current year.

Though the state finance department is yet to look into the nitty-gritties involved in the mobilisation of additional resources, there are not enough options before it.

The first-ever meeting held by the new chief minister Y S Rajasekhara Reddy on state finances and the investment requirements for the irrigation sector on Sunday more or less decided on the option of borrowings from domestic financial institutions for the plan requirements.

This would mean that the new Congress government has more or less ruled out the option of mobilising more revenues by increasing taxes or tariffs.

For a state whose debt stock reached 31 per cent (Rs 57,000 crore by the end of 2003-04) of the GSDP, thanks to the Chandrababu Naidu regime, this option seems to have its own constraints too.

The meeting was said to have opined that at least another Rs 20,000 crore was required to be mobilised over and above the current level of allocations.

Irrigation projects on hand would cost about Rs 40,000 crore. To top the list of problems, the Congress party has promised to complete all the pending irrigation projects in the state in the next five years.

The Naidu government borrowed about Rs 8,000 crore in the last financial year alone. While the total revenues, including central allocations, stood at Rs 31,000 crore in the previous financial year, the size of the annual budget was pegged at Rs 43,380 crore. This includes an annual interest payment commitment amounting to Rs 7,000 crore.

The Naidu government had earmarked Rs 2,039 crore for the irrigation sector in the 2003-04 annual plan. The total plan size was Rs 11,000 crore.

Now the Congress government wants the allocation for the irrigation sector to increase by more than 100 per cent. With an additional financial commitment of Rs 450 crore per year on account of providing free power to farmers, there is little scope for the government to gain from reprioritisation of spending, except containing wastage and leakages.

Government insiders point out that the Life Insurance Corporation and other public sector banks may not also come forward to meet the full requirement of funds as desired by the state government.

In such a scenario, the government may try to raise the money through bonds. But the response to the recent infrastructure bonds issued by the Naidu government was not hot, officials point out.

"In any case the government has little chance of spending more on the irrigation sector during the current financial year as four months would already be over by the time the budget is approved in the month of June," another senior official felt.

As far as the talk of doubling the current plan size, the officials feel that it is not practical. "The growth in plan size is not more than 10 per cent in any year. At any rate the spending of these allocations is no more than 80 per cent of the allocated size in all these years. Keeping this in view the current year's plan size may not cross Rs 12,000 crore," an analyst pointed out.

In fact the Naidu regime has changed the very meaning of plan and non-plan expenditure. Many items, which should have been in the category of non-plan expenditure, were included in the plan to show as if the plan size itself growing.

The Planning Commission has already objected to the Naidu government's practice of showing power subsidy as part of the plan expenditure. Even government scholarships were shown as part of the plan expenditure in the state.

"In the normal course, the items under planned expenditure have to be gradually transferred to the non-plan heads. But the Naidu government did the exact opposite. Otherwise, how can our plan size surpass that of Tamil Nadu, which is far more developed in terms of economy and resources," a senior official pointed out.

If the new chief minister takes this aberration into consideration, he has to depend even more on borrowings to increase the actual plan outlays.