Maharashtra dips into budgeted funds to pay for free power sops

The Maharashtra government released Rs 407 crore to the Maharashtra State Electricity Board (MSEB) on Thursday compensating it for free power offered to 23 lakh agriculturists in the September-December quarter of 2004-05, by dipping into budgeted funds allocated for meeting other development expenditure.

According to an expert in public finance, this diversion of budgeted fund is unconstitutional.

Confirming this, a senior government official told Business Standard, "The state had made a payment of Rs 585 crore to the MSEB for the second quarter of FY05 (July to September), including Rs 402 crore for the power sop as well as Rs 150 crore for reforms. The previous quarter was funded by drawing money from the Rs 700 crore budgeted fund, expressly for subsidised power for farmers. Therefore, the current disbursement would logically have to draw from the funds parked in the state treasury which are meant (read budgeted) for other development expenditure and amount to a violation of the Constitution."

The state government is already reeling under a debt burden of Rs 1,10,000 crore and it will find itself cash strapped if it has to finance a bouquet of 77 populist decisions announced in the run-up to assembly elections.

Delays are already being experienced in fuel reimbursements by state government employees. Another looming unbudgeted expenditure in the coming months would be for procuring cotton at Rs 2,500 per quintal as against a much lower market rate. An expenditure of Rs 486 crore was announced for this purpose.

In addition, the state has to provide for Rs 443 crore borrowed by the Cotton Federation from cooperative banks in the state during last year's cotton procurement programme. Banks would be disinclined to finance the scheme this year, till their earlier loans are repaid.

With the state government having promised a much higher price for cotton, a bumper crop in the state is expected to further strain the state government's resources. Already, the state government is considering unconventional methods of raising funds to the tune of Rs 3,000 crore to fund the various extravagant sops before elections.

Add to these, 75 other populist decisions by the state and the prospect of financing them would leave the state government unable to even fund salary-related expenditure to state employees.

According to informed sources, the state may thus decide probably to refrain from continuing the free power sop for the last quarter of the current fiscal while also giving a go-by to several smaller sops promised on the eve of elections that would otherwise have benefited smaller and deprived segments of Maharashtra's rural hinterland.

For instance, Rs 20 crore was promised to finance an honorarium payment of grant-in-aid to workers in hostels meant for backward castes.

Similarly, Rs 117.89 crore was promised to the Marathwada Textile Corporation in Nanded for conversion of its loan to equity.

Another Rs 222 crore was assured for a five-year special programme for backward talukas of Dhadgaon and Akalkua, Rs 375 crore was promised for setting up a welfare trust for anganwadi workers in the current fiscal with a Rs 11 crore recurring annual expenditure, Rs 10 crore was promised for the handloom sector and Rs five crore was assured to the Maharashtra State Farming Corporation, so it could meet its salary expenditure.