Large infrastructure projects being executed by State government entities will find it easier to tap international funds from bilateral financing agencies, with the Cabinet enabling them to directly access funding from such agencies on the basis of a central government guarantee while keeping such loans off States’ books.
“The funding arrangements that bilateral agencies such as Japan International Cooperation Agency (JICA) provide, is either with State governments or central PSUs — State entities are not allowed,” said Finance Minister Arun Jaitley. “If any State entity needs funding for its projects, it has to approach the State government and any such funding would be included under the State’s borrowing limits set by the Fiscal Responsibility and Budget Management (FRBM law).”
“So based on some conditions, a section of State entities with revenue of ₹1,000 crore or more, who are working on infrastructure projects worth over ₹5,000 crore, have been permitted to directly take money from such funding agencies on the basis of a central government guarantee,” he said.
Financially sound
An official statement said that the Cabinet had approved policy guidelines to allow financially sound State government entities to borrow directly from bilateral ODA (Official Development Assistance) partners for implementation of vital infrastructure projects.
“All repayments of loans and interests to the funding agencies will be directly remitted by the concerned borrower. The concerned State Government will furnish guarantee for the Loan. The Government of India will provide counter guarantee for the loan,” according to the statement.
Citing the example of the almost ₹18,000 Mumbai Trans-Harbour Link project, where JICA is expected to lend more than ₹ 15,100 crore, Mr. Jaitley said Maharashtra’s development expenditure would go down to that extent as its quota for borrowing under the FRBM targets would be used up.
Welfare schemes
“State Budgets also have pressure to spend on welfare schemes. If international funding is coming in, if that gets included in the FRBM calculations, then infrastructure projects will suffer,” Mr. Jaitley said, adding that projects like the Mumbai Trans-Harbour Link would now become possible.
While the Mumbai Metropolitan Region Development Authority (MMRDA) has been allowed to borrow directly from JICA for the trans-harbour project, other state entities meeting the revenue and investment criteria could also utilise this financing route.
‘Ensure checks’
“For getting infrastructure projects off the ground, this is obviously a good move,” said Amrit Pandurangi, senior director at Deloitte India. “But it must be used prudently for select projects in a State as taking such financing out of the FRBM framework could tempt States to borrow too much for all sorts of projects,” he added.
“There need to be some checks in place to ensure that future governments aren’t saddled with too much long-term debt on terms that appear to be soft now, but could become costlier over the years if you factor in the forex risk on top of the inherent risks in long-gestation infrastructure projects,” Mr. Pandurangi said.
