Don’t limit packages to businesses, lenders; states too need succour: Sharad Pawar to PM Modi

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Published: April 27, 2020 3:01:36 AM

Pawar’s letter to Modi dated April 25 echoed similar demands raised by many states including Kerala and Punjab, and underlined the notion that cutting spending was hardly an option for states at this juncture.

Pawar’s move comes at a time when several state governments could become a lot more indebted in FY21 as they are borrowing at a faster rate than the Centre, marring their recent track record of being less profligate. (File image)Pawar’s move comes at a time when several state governments could become a lot more indebted in FY21 as they are borrowing at a faster rate than the Centre, marring their recent track record of being less profligate. (File image)

NCP supremo Sharad Pawar has written to Prime Minister Narendra Modi urging him to extend an additional untied grant of Rs 1 lakh crore to the Maharashtra government for FY21, given that the state, one of the worst hit by the Covid-19, is facing shortfall of a similar amount to sustain the projected expenditure in the year. Estimating a 40% shortfall in revenue receipts from the budgeted level and arguing that covering this entirely through market borrowings could push the state to a debt trap, Pawar also sought a two-year moratorium on NSSF repayments.

Pawar’s letter to Modi dated April 25 echoed similar demands raised by many states including Kerala and Punjab, and underlined the notion that cutting spending was hardly an option for states at this juncture. The former Maharashtra chief minister wrote: “… it is heartening that central packages have been released for the poor and vulnerable, financial institutions, businesses and others. Similar packages need to be given to states.”

Pawar, whose NCP is a constituent of the Maharashtra government, added: “In the eventual recovery of the Indian economy, the states will play a major role and if left out without help, the states will not be in a position to supplement the required national government efforts.”

He also supported the idea of monetization of a part of central government deficit, mooted recently by several economists, including former RBI governor C Rangarajan. “There should not be a problem in central government resorting to deficit financing. It is felt that borrowing by the central government will be much more efficient and cheaper compared to borrowing by the states,” he contended.

It may be noted that many states have front-loaded their borrowings in Q1FY21. The 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.

Pawar’s move comes at a time when several state governments could become a lot more indebted in FY21 as they are borrowing at a faster rate than the Centre, marring their recent track record of being less profligate. Some states are asking for FRBM forbearance, allowing them to raise the deficit level to as much as 5%.

Hard-pressed, some states are even disregarding the exorbitant costs such fund-raising entails, in a clearly risk-averse, jittery market. While the announced indicative schedule for SDLs in the April-December FY21 and April-June periods suggests a front-loading bias, actual auctions could prove to be even more frequent and adventurous.

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