Loan waiver will burn a hole in Maharashtra coffers, will need two years to cope, says CM

mumbai

Updated: Jun 24, 2017 15:25 IST

Chief minister Devendra Fadnavis said that the proposed farm loan waiver, estimated at a minimum of Rs 30,000 crore, could set the state back by two years and affect the fiscal health of the government.

Fadnavis told HT that the farm waiver would test the state’s fiscal parameters but his government was looking at innovative methods to tackle it and come out of the “stress”. He ruled out the option of monetising government land to raise funds.

“Any loan waiver will lead to a stress on the fiscal parameters. It will be the same with this waiver. But, we will come out of the situation by adopting innovative ideas. It will take the government a couple of years to balance out the impact of the waiver,’ said Fadnavis.

The chief minister added that the government had received proposals to raise finances for the waiver and one of them included use of the deposits stacked away by public companies and agencies like Mumbai Metropolitan Region Development Authority (MMRDA), City and Industrial Development Corporation (Cidco) and the Mumbai civic body.

“Some people have proposed that we take loans on the deposits stacked up by agencies and companies. They have also suggested that similar loans be taken on deposits of the Mumbai civic body — they have Rs50,000 crore in deposits. The suggestion is to pay them interest for the funds. But, we are still figuring out how to go about the loan waiver and there has been no formal consultation or decision on this,’’ said Fadnavis.

Sources in the finance department said that a cut of 25% on development spending across departments was likely in light of the burden from the waiver. Development expenditure is spending on development schemes and creating assets but not wage bills, interest payments or maintenance.

The chief minister, however, ruled out the option of sale or monetising government land to raise resources for the waiver.

“Land monetisation is not a quick solution and this will require a minimum of two to three years,’’ he added.

The chief minister said that he was optimistic about the Goods and Service Tax (GST) roll out given that Maharashtra, with its 12 crore population, had the largest consumer base in services and would get a greater share of these taxes.

The BJP-led government is currently negotiating a farm loan waiver package with farmers’ leaders and is likely to finalise the details next week. For the past two years, Fadnavis has held back on the waiver saying that it was not a long term solution for the agrarian crisis and investment in the sector was a better option for farmers. However, with farmers protests getting more traction, the government gave in to the demand of the waiver this month.

State’s fiscal indicators to take a hit :

As per preliminary estimates :

The fiscal deficit estimated at 1.3 per cent of the GDP by the end of this fiscal will go up to 2.7 per cent. The state will have to curb the fiscal deficit within 3 per cent of the GDP as per parameters laid down by the 14 th Finance Commission

The state’s over debt stock estimated to reach Rs 4.13 lakh crore could balloon up to Rs 4.40 lakh crore.

The development spending in the state will be affected with a 25 per cent cut across the departments on cards.

Other concerns for the state :

The state has to shoulder the 7th pay commission by next year, which will cost it Rs 21,500 crore