BANGALORE: The State Government has pulled out of the Karnataka Economic Restructuring Loan, a $ 1 billion World Bank loan obtained by the S.M. Krishna Government in 2001. The loan launched the ambitious structural adjustment programme in 2000-01. It was initially negotiated for a five-year period with five instalments with focus on "eradication of poverty through economic growth tempered with equity."

The difficulty in executing the reforms in the power sector and the sound fiscal position are cited as major reasons for the decision of the Government against seeking the balance of the loan from the bank. With the revenue receipts expected to cross Rs. 35,000 crore during the current year, there was no necessity as of now to take the future instalments of the loan, a senior government official said.

The bank had released $ 150 and $ 100 million in 2001 and 2002 respectively. The A.B. Vajpayee Government had rejected the State Government's proposal to avail itself of the third instalment of the loan ($ 200 million) from the bank in 2003 on the grounds that the State had achieved little on the fiscal and power reform fronts.

The State's financial position is now sound compared with the previous years. Strong tax growth, expenditure control and deficit reduction are the major achievements of the State under the adjustment programme. The average collection rate of all taxes is up from 97 per cent of budget estimates in 2001 to 106 per cent in 2006. The fiscal deficit has been contained within three per cent of Gross State Domestic Product, and over Rs. 7,000 crore has been set aside for capital expenditure in this fiscal year.

However, much needs to be attained in the power sector, say official sources.

The Janata Dal (S)-BJP Government, which is projecting a pro-farmer image, is unwilling to adhere to the bank conditions in this sector. The bank has observed that financial losses in this sector did not fall as expected and bill collection efficiency was at 84 per cent compared to the agreed target of 96 per cent. Progress on metering was also below the target and privatisation had been delayed.

The major conditions of the bank in the power sector are implementation of cost control measures to contain power sector losses; improvement in collection efficiency; universal metering; strict implementation of anti-power theft act and progress towards privatisation.

Implementation of the bank conditions in the sector will hurt the sentiments of farmers, who form a major vote bank of ruling parties.

"Nothing much has been done in the power sector, but it is difficult to implement the conditions by borrowing the bank loan," an official said.

The transmission and distribution loss in the sector is 25 per cent; installation of meters was just 27 per cent of all irrigation pump sets, 64 per cent for Bhagya Jyothi and Kuitra Jyothi schemes and 82 per cent for streetlights.

The subsidy alone cost Rs. 1,726 crore for 2005-06, according to the Karnataka Electricity Regulatory Commission.

The bank has stated that the power sector is exerting a considerable drain on the State's finances, which, in turn, has reduced the capacity of the Government to address the social needs of the vulnerable sections of the people.

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