Centre Axes Maharashtra Plea On World Bank Loan

Mumbai, May 26: | Updated: May 27 2003, 05:30am hrs
The Centre has turned down cash-strapped Maharashtra governments plea to recommend its case to the World Bank (WB) for a special structural adjustment (SSA) loan of Rs 3,500 crore.

The ministry of finance has noted that as regards the proposal for the SSA loan from WB, extant guidelines provide for only 20-25 per cent of annual commitments from WB for SSA loan assistance.

The ministry said that in view of the limited availability of SSA loan funds, it is not feasible to take up Maharashtras proposal at this stage. It may be taken up later, depending upon the progress made in the proposals already under consideration, it added.

Top sources told FE that slow pace of economic reforms, especially in the power sector, was a major factor that went against Maharashtra. Ironically, the state had already inked a medium-term fiscal reform programme and a memorandum of understanding with the Centre for increasing user charges, privatisation of infrastructure, power sector reforms, cap on guarantees and reduction in debt. However, the state has failed to impress the Centre and pursue its reform process compared to neighbouring Andhra Pradesh, Karnataka and Goa.

With the Centre rejecting the state governments proposal, the fate of the governments loans totalling Rs 4,948 crore from WB hangs in the balance. The state had argued that if WB sanctions its loan for SSA, it would pave way for all government project-related loans of Rs 4,948 crore. These loans included Rs 1,700-crore Maharashtra Water Services Improvement Project (irrigation), Rs 1,656.20-crore Maharashtra Rural Water Supply and Sanitation Project, Rs 892-crore Maharashtra Natural Resources Management Project (Forests) and Rs 700-crore Maharashtra Health Systems Development Project.

The state government, which is reeling under a debt burden of over Rs 83,000 crore, had argued that its loan would not fail due to backtracking as the government has already initiated steps required for structural adjustment.

Sources said that the Centres refusal to accept the state governments plea assumes importance, especially when chief minister Sushilkumar Shinde during his election campaign last week announced that the Union finance ministry has already forwarded its case to WB. Mr Shinde and his predecessor Vilasrao Deshmukh had personally met Union finance minister Jaswant Singh and made a strong argument in this regard.

The state government had submitted that WB had completed its detailed study of the finances of Maharashtra. The study had highlighted all the action points required for structural adjustment. Curiously, WB, in the same study, had rapped the state government for its burgeoning revenue and fiscal deficits, increasing non-plan expenditure and slow pace of power reforms.

Analysts said that the Centres decision not to recommend Maharashtras case to WB would be a major jolt for the state which has been facing a challenging situation.

The Maharashtra government was quite optimistic that the Centre would forward its case to WB as it would have given the much-needed political mileage for the Congress-led Democratic Front ahead of general elections in September 2004.