Maharashtra has had a problem financing its irrigation projects. For one, the state government has tended to favour projects in western Maharashtra, leading to developmental imbalances.
For another, on March 31, 2002, when the Maharashtra Krishna Valley Development Corporation defaulted on payments of Rs 74 crore owed to institutional investors, rating agencies Icra and Crisil downgraded the state government bonds.
Both agencies accept procedural delays were more to blame for the delays in the payments.
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Now Maharashtra seems to have found a way out of this mess, thanks to a directive by former Governor P C Alexander.
In December 2001, Alexander asked the state government to set up an agency to raise funds for irrigation projects and ensure that the money raised was distributed equitably to all regions.
The formula will face its litmus test within a month when the state government hits the market with a Rs 500-crore bond issue.
The state government has set up a special purpose vehicle, Maharashtra Irrigation Finance Corporation (MIFC), for this purpose.
Despite the downgrading of the state government bonds by Icra and Crisil, MIFC is expected to command investor confidence because of special mechanisms introduced by the state government.
The state government has decided to approach the Reserve Bank of India for concessions and incentives for banks that subscribe to the MIFC bond issue.
"We will approach the RBI, seeking statutory liquidity ratio status for these bond issues," official say.
The state government has also tried to ensure that MIFC is not bogged down in the procedural delays.
MIFC is a 100 per cent government-owned company headed by the chief secretary and serviced by the state planning commission.
Executive directors of the regional irrigation corporations and the planning secretary are members of its board.
"The bond issue will not suffer delays just because the files have to be individually cleared by the irrigation, planning and finance departments," officials say.
Maharashtra had five irrigation corporations that had to both raise funds as well as execute the projects.
MIFC will, however, only have to raise funds and the five corporations will execute projects.
Also, the irrigation corporations will not be free to disburse funds without adequately focusing on the development backlog.
This will eliminate the discriminatory practice of favouring irrigation projects in western Maharashtra, officials say.
Earlier, the politicians who headed the irrigation and finance departments would try and steer projects to the areas they favoured, which often fell in western Maharashtra.
The bond issues will be project specific. Thats in keeping with a RBI directive to banks not to subscribe to state government bonds unless the bond issue is project-related.
Finally, minor and small irrigation projects will be completed on a priority basis. Up till now, hundreds of minor small, medium and large irrigation projects have been receiving money from a thinly spread out corpus. As a result, many have not been completed.
Yet Maharashtras solution to the problem of funding irrigation projects hinges on the RBIs nod.