Mumbai: In order to restore the fiscal balance of Maharashtra that has been disrupted by the Coronavirus pandemic, the Maharashtra government may favor the option of drawing loan of up to Rs one lakh crore, either directly from the Reserve Bank of India (RBI) or through the RBI from other banks. The matter could be considered by a committee of 11 retired bureaucrats who have been appointed to review the fiscal situation facing the state and make recommendations to the state government, this was disclosed to TheNews21 by a senior official from the finance department in Mantralaya.
There have been two meetings of the Committee on Finance held so far, and the committee is expected to submit its report to the state government later this month along with its recommendations.
According to the information given by the officer, the state government has already approached the Center (federal government) with a demand for fiscal support in the form of loan. “The central government has two options. The Center should take a loan from the Reserve Bank of India and distribute it to the concerned states as per demand or need.
He said that there are two ways by which state governments can directly borrow from the Reserve Bank or from the open market. This means that the Reserve Bank gives quotas to disburse loans to various banks. The concerned bank auctions or places bid on this amount and the state government that pays the maximum interest, the bank gives loan to that state, the official said.
He further said that although the loan amount is auctioned, the interest on the loan is usually around 7 to 7.25 percent. At present, banks are demanding an additional one per cent interest on loans from the state due to shrinking of deposits with the banks.
Every year the Maharashtra government borrows about Rs 30,000 crore to Rs 40,000 crore from the market. “Although the fiscal position of the Maharashtra government is strong, yet all industries are now closed, there is no industrial production and the state government as a consequence is deprived of income from Goods and Services Tax (GST).”
The gazetted officer further stated, at present, there are two major issues facing the state and central governments. The state does not have the funds to run the affairs of the state and the industries do not have the cash liquidity to start production. Therefore, the challenge for the central government is to provide finance to both these entities.
Maharashtra government has the ability to borrow. The state government can raise another loan up to the limit of 3 to 5 percent of state GSDP from the open market. Only if these funds are got then only can the salaries of government employees be paid. So also, some infrastructure works can be undertaken, the official said.
One per cent loan means Rs 30,000 crore. The government-appointed committee on finance is likely to recommend raising about 4.50 per cent loan for the state. Even though the recommendation to this effect is made by the committee, the gazetted official said that the Maha Vikas Aghadi, led by Chief Minister Uddhav Thackeray, could consider raising loan up to 3 percent which can come around to Rs 90,000 crore to Rs 1 lakh crore.
The committee on Finance is currently taking an estimate of the expenditure of each department. Information is being sought from all the departments about their essential schemes and the expected expenditure on them. The committee is working on how much funds are required over the next six months, assuming that the Corona effect lasts for the next six months. The state government has to decide how much funds should be given to which department and impose cuts on which schemes considering the available loan amount at hand. The committee on Finance will only prepare a table of the department-wise schemes and the funds that will be required for it. The committee has been given a deadline of April 30 to submit its report.
