COVID Combat: Now, states seek forest funds

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Published: April 27, 2020 6:30:51 AM

A finance ministry official said some other state governments have also shown interest in borrowing from their respective state CAMPA funds, but refused to name them.

The CAMPA funds have been transferred to the states over the past few years by the Central CAMPA on the direction of the Supreme Court.The CAMPA funds have been transferred to the states over the past few years by the Central CAMPA on the direction of the Supreme Court.

In another instance of the government tapping resources other than the budgetary funds — assorted receipts and market borrowings — to meet heightened expenditure requirements during the pandemic and its aftermath, some states are discussing with the Centre the option of availing of soft loans from the funds lying with the Compensatory Afforestation Fund Management and Planning Authorities (CAMPA) at the state level. These CAMPA funds, mostly parked in central government securities, are estimated to be worth over Rs 50,000 crore at present.

The Centre had earlier asked the states to tap the district mineral funds (DMF) to meet their contingency spending needs; Odisha, one of the mineral-rich states which oversees large DMF funds aggregating Rs 7,000 crore, has even asked the Centre to remove the cap of 30% cap on the use of DMF to fight Covid-19 in each affected district.

Odisha finance secretary Ashok Meena said: “The state oversight authority (headed by a former Supreme Court judge) of the CAMPA fund has given us the permission to borrow from CAMPA. Now, we are awaiting the accounting norms from state Accountants General (AG)”. He said the state would pay the same interest that the fund generates from investments in central G-Secs.

Still, resorting to CAMPA funds is cost-efficient for Odisha: Investment in G-secs fetches up to 4.5% interest for securities up to 364 days (maximum maturity allowed) whereas the state pays about 6% interest for loans up to one year from the market. So, there is a differential of 1.5 pps.

A finance ministry official said some other state governments have also shown interest in borrowing from their respective state CAMPA funds, but refused to name them.

The CAMPA funds have been transferred to the states over the past few years by the Central CAMPA on the direction of the Supreme Court. Under the Forest (Conservation) Act 1980, the central CAMPA collects money for diversion of forest land for non-forest purposes such as industrial projects.

The fund has to be used for carrying out compensatory afforestation across the country and the idle fund has to be invested in interest bearing instruments, ie, central G-Secs and bank deposits as specified by the SC. However, the court has also delegated the power to the state oversight authorities to take decisions regarding management of funds. Besides central G-secs, there have been instances of state CAMPA funds being invested in state development loans (SDLs) of other states except in SDL of the same state.

The Reserve Bank of India norms don’t allow investment of any state funds, including CAMPA funds in any instrument if a state taps the central bank’s Ways and Means Advances (WMA), making the funds lie idle without any interest income, the Odisha finance secretary said.

Among the states, Odisha CAMPA fund has the highest surplus amount of Rs 5,500 crore. The state wants to borrow 60% from the fund when needed instead of borrowing costly funds from market.

Looking for alternative sources of low-cost funds, at least two states — Odisha and Maharashtra – are also seeking soft loans from their cash-rich undertakings. Odisha is planning to borrow from Odisha Mineral Bearing Areas Development Corporation, a state government undertaking with which a robust corpus of Rs 17,000 crore lying unutilised, to Maharashtra, which is expecting a huge shortfall in revenue receipts in at least the first three months of this fiscal, is also looking at the option of tapping cash surpluses with the state PSUs for additional funds.

Market analysts reckon that the states and the Centre would end up resorting to substantial extra borrowings over and above their budget estimates in FY21, a possibility which is getting priced in the bond auctions already. With many states planning to front-load borrowings in Q1FY21, RBI recently enhanced the WMA for states by 60% (from the level as on March 31) to about Rs 51,560 crore for H1FY21 to encourage the states to spread out their borrowings.

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