The clearance given by the Finance Department to remit the earnest money deposit (EMD) of works executed under various departments and public sector undertakings (PSUs) as well as government grants and the salary of employees, in two nationalised banks is understood to have worsened the strain on the State’s finances.

Finance Department sources told The Hindu here on Thursday that oral directions had already been given to Treasury officials to limit the release of funds for footing the routine expenses alone. Curbs have been imposed on releasing even bank guarantee furnished to the government for various purposes.

Deviating from the convention of disbursing the full salary and pensions for December in advance for Christmas, an order issued on December 11 said only 25 per cent would be paid by the month-end. This is said to be a pointer to the crisis. The financial crisis is likely to hamper the implementation of Plan projects during the last quarter of the financial year. The clearance given earlier in the year to deposit the EMD of all bidders in government departments and PSUs as well as the salary of employees and government grants has left the treasury poorer by Rs.1,200 crore a month. The government has thus lost the leeway to use the funds left at its disposal to meet exigencies and also fund development initiatives.

On switching over to e-tendering for all works and procurement costing more than Rs.25 lakh, the Finance Department issued an order on January 7 stating that the cost of tender documents as well as the EMD of bidders should be deposited in the government treasury.

While the EMD of the unsuccessful bidders is automatically refunded on finalising the tender proceedings, the deposits of those securing the bids remain with the treasury and will be returned without interest only on completing the works. Thus huge sums were left at the disposal of the government without paying interest. Subsequently it was decided that the funds can be deposited in banks on the premise that the treasury lacked the infrastructure facilities.

This had worsened the crisis. Of late the Finance Department had expressed its resolve to enhance the infrastructure in treasuries, but the permission for routing the funds to the banks has not been repealed. Delay in repealing the decision would worsen the crisis, sources said.

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