In a bid to ensure smooth funding for state infrastructure projects, the Central government on Wednesday allowed state government entities to borrow directly from bilateral overseas lending agencies to fund major infrastructure projects.
The step was taken to accelerate the pace of investment in major infrastructure projects in the country without compromising the need for external assistance for other sectors.
The existing guidelines do not allow direct borrowings by the state government entities from external agencies. Currently, a state government is allowed to borrow to the extent that its fiscal deficit does not exceed the limit of 3 per cent of its gross state domestic product.
Underlining the need for such move, the Finance Ministry issued a press statement saying, "Several State agencies are implementing major infrastructure projects of national importance. These projects, even if viable and sound, have huge funding requirements and borrowing by the State Governments for such projects may exhaust their respective borrowing limits."
Presently, external development assistance from bilateral and multilateral sources is received by the Central government for projects in the central sector; for projects executed by central PSUs; and on behalf of the state governments for state sector projects.
The new relaxation will allow the financially sound state entities to directly borrow and repay the loan required for major infrastructure projects without burdening the State exchequer. The concerned state government will furnish guarantee and the Central government will provide counter guarantee for the loan.
Soon after the Union Cabinet approved the proposal, Finance Minister Arun Jaitley said that it will benefit directly benefit large infrastructure projects like the Mumbai trans-harbour link (MTHL).
The new policy change will allow Mumbai Metropolitan Region Development Authority to borrow directly from the Japan International Cooperation Agency a Rs 15,109 crore loan to implement the Rs 17,854 crore Mumbai Trans Harbour Link project.
"The Mumbai Metropolitan Region Development Authority (MMRDA), a State Government entity, has also been allowed to borrow directly from Japan International Cooperation Agency (JICA) Official Development Assistance (ODA) loan for implementation of Mumbai Trans Harbour Link (MTHL) project," the Finance Ministry said.
The estimated project cost for Mumbai Trans-Harbour Link (MTHL) is Rs.17,854 crore, out of which JICA loan portion is expected to be Rs.15,109 crore.