State whittles down debt mountain

Consolidated state debt stood around Rs 84,000 crore as on March 31, 2003.

Principal secretary A K D Jadhav said fiscal prudence and deft management in addition to the retirement of Rs 4,000 crore worth of high-cost debt (including Rs 3,000 crore of very high-cost debt taken for irrigation projects by special purpose vehicles (SPVs) in the late 1990s) was responsible for the improved situation.

Cassandras had said that the loan portfolio of the state could balloon past the Rs 1,00, 000 crore mark. In fact, state finance minister Jayantrao Patil had told the Business Standard during the recent budget session that the state's debt would rise to Rs 99,000 crore before the expenditure and revenue curves crossed. After this point, he said, the revenue curve would continue to steepen while the expenditure trendline would droop.

According to Jadhav, gross state domestic product (GSDP) has been rising much more rapidly than debt stock in the last three years and the trend will continue in the next two years.

"The result is that the percentage of debt to GSDP has reduced significantly from a high of 39.55 per cent in 1998-1999 to 29.67 per cent in 2002-2003," he said.

The norm prescribed by the Finance Commission and the Union finance ministry's medium term fiscal reforms programme (MTFRP) being 30 per cent, the state is now within that norm and as long as GSDP growth continues, the borrowings will remain sustainable."

The GSDP of the state has steadily risen from Rs 1,79,311 crore in 1996-1997 to Rs 2,90,142 crore in the last fiscal 2002-2003 and is estimated to reach Rs 3,13,212 crore in 2003-2004. The state government is also seeking to rearrange the high cost debt swap plan proposed by the Union government (GOI) to avail of the lower rates of interest.

Out of the total debt stock, Maharashtra's GOI debt alone stood at Rs 37,064 crore (as of March 31, 2002) and is pegged at Rs 40,000 crore today. These loans bearing an average rate of interest of 12.85 per cent and a peak rate of as much as 15 per cent entail a high outgo in interest payments from the state to the Central government each year.

In 1996-1997 Rs 2,447 crore, Rs 2,904 crore in 1997-1998, Rs 3,673 crore in 1998-1999, Rs 4,884 crore in 1999-2000, Rs 5,224 crore in 2000-2001, Rs 6,429 crore in 2001-2002, Rs 7,222 crore in 2002-2003 is the interest amount paid by the state government on GOI loans that stand in the range of Rs 40,000 crore. In the current fiscal an estimated Rs 8,306 crore in interest is to be paid on GoI loans.

However, as part of the debt swap plan of the GoI already Rs 4,000 crore of GoI debt was swapped in the initial few months of 2003-2004. The Maharashtra government has submitted to the Union government that instead of its high-cost GoI debt (peak rate of 15 per cent), it be permitted to first retire its high cost SPV debt (peak rate of 18 per cent).

Maharashtra has sought from the Centre the same debt amelioration dispensation as it has granted to states like Andhra Pradesh and Tamil Nadu.