The Hindu : Andhra Pradesh News : Major changes soon in borrowing pattern

Online edition of India's National Newspaper
Monday, May 30, 2005

Andhra Pradesh

Andhra Pradesh

Major changes soon in borrowing pattern

M.Malleswara Rao

Loans from internal and external sources to be restricted to 6,900 crores per year

HYDERABAD: Drastic changes are being planed in the State's borrowing pattern as loans taken by the Government in a year from all sources, both external and internal, will be restricted to Rs 6,900 crores.

This constitutes 3 per cent of the current level of the Gross State Domestic Product, the maximum limit allowed to States for loans by the 12th Finance Commission and the RBI. If the borrowings exceed 3 per cent, the Centre will not write off part of the outstanding loans. States have no escape from the restrictions, as all loans are routed through the Union Government.

An ordinance on "Fiscal Responsibility and Budget Management" prepared for these changes is awaiting the Governor's consent. It may be promulgated anytime now.

Changed scenario

With a commitment of Rs 46,000 crores on irrigation projects alone, how will the State manage in the changed scenario?

A plan has been drafted to hike the GSDP itself by raising income levels through various sectors for a corresponding upward shift of the maximum limit of the loans.

Until this is achieved, the State has to satisfy itself with Rs. 6,900 crores per year. The Government is not all that worried, for it doesn't need the entire amount at a time.

Figures show that the loans taken so far by the State from all sources have reached an all-time high of Rs 75,000 crores, including Rs 9,000 crores availed of by the Congress Government during its one-year term so far but under the old schemes.

With this, the debt-servicing burden has also gone up to Rs 7,700 crores per year. Formalities are in the final stages to borrow Rs 7,000 crores afresh this year. At this rate, the loans may not take more than three years to touch the Rs 1 lakh-crore mark.

Outstanding loans

The ordinance stipulates that the State will have to reduce the outstanding loans to 35 per cent of the GSDP by 2010 from the current 37 per cent. The ordinance assigns several responsibilities to the Government. It will have to wipe out the difference between expenditure and receipts by March 31, 2009. With the present gap being 1.05 per cent of the GSDP, the reduction to be achieved annually will be 0.3 per cent. Similarly, the fiscal deficit, which is 3.66 per cent now, will have to be brought down to 3 per cent by 2010.

Justifying the ordinance, finance officials speak of Karnataka which "achieved good results" after enacting similar legislation.

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