Maharashtra seeks RBI overdraft

Faced with a liquidity crunch, the Maharashtra government has resorted to a overdraft facility from the Reserve Bank of India (RBI).

O P Gehrotra, additional chief secretary (finance), told Business Standard: "It is true that there was a dislocation of cash flows that were strained in the month of April. The financial year 2005-06 begins with a negative balance of Rs 615 crore. Moreover, there are initial hiccups in the value added tax (VAT) regime."

According to Gehrotra, the state government is in the process of making ready data available on the revenue accrued to it under VAT. The aim of the initiative is to ensure immediate claim for compensation to the Union government for the shortfall's experienced.

"The problem is that in many cases VAT related revenues are being made out through hundreds of banks in the state. Similarly, returns and challans filed by a huge number of traders under VAT are in the pipeline with banks and other designated financial institutions not making a daily remittance of these dues to the state government," he said.

Gehrotra noted that a methodology to generate date of revenue accruals instantly was being worked out so that the compensation claim from the Union government may become immediately available.

The VAT scheme promulgated by the Union government allows for compensating state that register lower revenues on its account even within a fortnight's time.

In a release issued by the state finance department, the state government has refuted claims that it had mandated the transfer of all available funds with state run corporations to itself in a bid to meet its liquidity problems.

"The fact of the matter is that while budgetary allocation of funds are made to the various state run corporations or these are permitted to raise loans from the market through state government backing that are deposited in banks accruing an effective interest rate of five to six per cent.

"The state government on the other hand avails of loans from either the Union government or financial institutions upon which is it charged a interest rate of nine per cent to 10 per cent. In a bid to bring about fiscal prudence in the state and find a way out of this loss that corporations were asked to deposit their excess funds with the state government," the release said.