Will M'rashtra be caught in debt trap

Last week, Maharashtra Governor S M Krishna cleared the state's proposal to raise Rs 16,000 crore through bonds to finance incomplete irrigation projects.

However, experts fear this may push the state into a debt trap which the state had experienced in the late 1990s and in the early part of the decade.

For the last two years, fund allocation for irrigation projects has become contentious in Maharashtra politics. MLAs from Marathwada, Vidarbha, Konkan and Northern Maharashtra regions are vociferously opposing the 'excessive' allocations to projects in Western Maharashtra, especially in the Krishna Valley.

However, the state argued a new tribunal has been set up to decide on the share of Maharashtra, Karnataka and Andhra Pradesh of Krishna waters.

If the state doesn't utilise the 560 TMC water, as per the last tribunal's verdict, then the unutilised water will be declared as excess and Maharashtra will have to share it with the neighbouring states.

As no solution was in the sight, MLAs from all regions, cutting across party lines, pressured the state government to undertake the detailed study on the quantum of funds required to complete the project. The resolution was adopted authorising the state to use all means to raise funds to complete irrigation projects during the budget.

Subsequently, water resources ministry carried out the study and came up with a whopping figure of Rs 30,000 crore for completing all ongoing projects over the next four to five years.

The study showed that, through budgetary support, only Rs 14,000 crore to Rs 15,000 crore can be raised for irrigation projects. Following this, the state cabinet had adopted a resolution to raise the Rs 16,000 crore from bonds or other means of external borrowing and sent to Governor S M Krishna for his approval.

However, Krishna raised doubts over the whole process of external borrowing, after seven or eight months of correspondence between Mantralaya and Raj Bhavan.

All the doubts of Krishna seem to have been cleared by the state government, as Krishna has given a clearance to raising Rs 16,000 crore loan.

But the Krishna's assent brings back memories of the late nineties and early part of this decade when the state was caught in a debt trap and its bonds were downgraded by the credit rating agencies to negative.

In 2003-04, the ratio of fiscal deficit to the state¿s gross domestic product (SGDP) had reached 5.3 per cent and state was spending nearly 20 per cent of its all revenues on debt servicing.

This happened because of the BJP-Sena government which came to power in 1995 and was in hurry to show it could develop the state much faster than the Congress. This lead to a spending spree and mindless borrowing for projects like Mumbai-Pune expressway and 35 flyovers in Mumbai.

But the major cause was the high cost Rs 7,500 crore bonds raised by the government to complete the irrigation projects in the Krishna valley.

Ironically, with the state finding it difficult to finance the ever-escalating prices of project, they never brought in the intended benefits. Water was impounded in most cases but distribution channels could not be created due to a paucity of funds.

Highlighting this issue former finance secretary of the state Madhav Godbole said, the gap between impounding of water and constructing distribution channel has been 18-20 years in some cases .

According to the 12th Finance Commission report Maharashtra is one of the most distressed states due to rising debt burden but who cares, since economy is flush with funds, he added

So before embarking on a mission to raise funds through market, state must come out with a mission statement, explaining what is the quantum of funds it is going to raise each year, on what project heads funds will be spent, interest burden on the state.

This will help people of the state to keep a better vigil on the state's finances, Godbole suggested.