EMS housing project, envisaged to benefit five lakh below poverty line (BPL) famillies in three years, counts on dipping from the Rs 2,085-crore-per-year plan kitty of civic bodies along with bank credit support.
The Kerala government, meanwhile, has been forced to go credit-hunting elsewhere for its social housing plan, bearing fiscal burden over Rs 100 crore in interest differential. "Commercial banks are not eligible to finance the projects undertaken by public sector entities, where repayments are made by budgetary resources," says a letter from the RBI Governor to State minister TM Thomas Isaac on June 30, 2008, quoting a prior RBI directive (dated 19/1/2008).
"While the fiscal stimulus package gives a buoy to social housing, some of the RBI directives have been hard on similar projects by State governments. Many of the UPA policy measures are as if the right hand undoes what the left hand does," Isaac told FE.
In the Rs 250-crore EMS housing project, beneficiaries and local bodies share the interest in a 50:50 ratio. Last week, the State Cabinet had offered to mop up the interest burden of local bodies on this account.
With State co-operative banks sitting on warchest of over Rs 25,000 crore, the 1000-odd civic bodies in Kerala actually have no shortage of funders. But the cost of funds could be much higher, with interest rate hovering even hovering above 10%. Unlike commercial banks, co-operative banks do not have interest subversion caveat. Planning sources that this could bleed the State government budget by at least Rs 100 crore per year.
The extra-burden on State-level capital spending on developmental projects, in a year when the States are pressured by the worst of the world financial meltdown, is avoidable if bank credit policy plans are better fine-tuned, Isaac said. The fall in export demand and anticipated fall in NRI remittances are feared to leave a mark on the State's growth in 2009-2010.
Kerala FM welcomed the Centre's decision to extend States' market borrowing limit by 0.5%. However, given the magnitude of the revenue fall, due to the fall in demand, this would not suffice to meet the resource-gap of States," Isaac said. In a stark signal of the future implications on State revenues, Kerala government's revenue collections in December alone have fallen Rs 300 crore short of the estimates.