Maharashtra on the brink of debt trap

Maharashtra's mid-term appraisal of the tenth plan (2002-2007), submitted to the Planning Commission in Bangalore today, has admitted that the state financial situation is acute "" a debt burden of Rs 1, 10, 211 crore at the beginning of 2004-2005 "" and added that unforseen expenditure on things such as free electricity to farmers, 50 per cent merger of dearness allowance in the basic pay of state government employees as well as servicing of debt has placed it on the brink of a debt trap.

Maharashtra's finance department has also stated that it may find it difficult to achieve the 8 per cent target set for gross state domestic product (GSDP) growth in the tenth plan, owing to the continuous dismal performance in agriculture, mainly during the last three years.

"Considering the past trend, it is suggested that at a reasonable target of 6.5 per cent for growth of GSDP may be set for the state."

Under the sub-head 'resources for the five year plan'""the appraisal report notes, "The tenth plan is funded entirely through borrowings. The fiscal deficit is sought to be contained to some extent through the efforts at increasing revenue."

It adds that certain items of expenditure "which were not envisaged at the time of the preparation of estimates for the tenth plan have now cropped up..These include the 50 per cent merger of DA in the basic pay, free electricity to farmers, recommendations of the second state finance commission, the budgetary provision of approximately Rs 1, 592.89 crore on account of repayment of bonds in 2005-2006 and 2006-2007 and the fulfilment of the assurances like purchase of cotton at the rate of Rs 2500 per quintal.."

The appraisal report also states that the Union finance ministry's department of expenditure recently said that a non-special category state was considered a debt-stressed state if the "ratio of its consolidated debt and liabilities to total revenue receipts excceds 300 per cent."

As per the budget estimates for 2004-2005, this ratio for Maharashtra is now 281 per cent. "The government of Maharashtra is on the verge of a debt trap," the report candidly adds.

Similarly, as per the eleventh finance commission recommendations, interest as a per cent of revenue receipts has to be less than 18 per cent.

In Maharashtra's case, the ratio is already 25 per cent. So the ratio has to be brought down and in the short run borrowings have to be limited, the report states.