The Hindu : Naidu defends external borrowings

Online edition of India's National Newspaper
Sunday, Dec 28, 2003

Southern States

Southern States - Andhra Pradesh

Naidu defends external borrowings

By Our Special Correspondent

HYDERABAD Dec. 27. Debunking the Opposition charge, the Chief Minister, N. Chandrababu Naidu, has justified the "huge" external borrowings, saying the quantum of debt raised and the interest at which it has been borrowed is much less compared to several other States. He has thrown a challenge at the Opposition to show an alternative borrowing option with a still lesser interest regime.

More importantly, the borrowings have been used prudently for capital projects and creation of assets, he has contended. "All countries in the world have been developed only through borrowing, which has emerged as the preferred option to fund any development process. The best way of meeting development costs is to borrow and repay over a long time."

Mr. Naidu was holding interactive session with the people on `State revenues and externally aided projects', telecast live on four private TV channels. But none of the dozen persons with whom he interacted asked questions on the subject. Most of their questions related to issues affecting them at the local level like land, roads, water supply, health and sanitation.

He found nothing wrong in borrowings as long as they were spent on asset creation and facilitating economic growth and not on payment of salaries as was the case with in other States. The economic growth would improve State resources and repayment could be done without difficulty from the buoyancy of the resources.

He said, Andhra Pradesh's debt at Rs.50, 084 crores was much less than Uttar Pradesh's Rs. 87,106 crores, West Bengal's Rs. 68,111crores and Maharashtra's Rs. 61,324 crores. Debt of Andhra Pradesh, as a percentage of the Gross State Domestic Product, was 30.41 in 2002-03 as against 61.4 of the Gross Domestic Product of the country. In per capita terms, the debt in Andhra Pradesh stood at Rs. 3,846 in the year 2000-01 as against Rs. 9,778 for Punjab, Rs. 6,508 for Kerala, Rs. 4,732 for Rajasthan and Rs. 4,614 for West Bengal.

Even otherwise, World Bank loans constituted only about 19 per cent of the total borrowed funds and not as publicised by some interested sections. The externally aided projects had low rate of interest with effective rate working out to a mere 7.4 per cent, compared to Small Savings or borrowings from market.

Other advantages of external loan were five years moratorium on 50 per cent of it, repayment spread over 20 years period, greater access to additional Central Assistance and 70 per cent of it came as loan and 30 per cent as grant. Of the Rs. 15,364 crores of external assistance (World Bank, DFID, IFAD, JBIC and Netherlands), the loan component was Rs. 8,611 crores, while the grant was Rs. 6,753 crores working out a whopping 43.95 per cent.

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