Union Cabinet approves policy guidelines to allow state entities to directly borrow bilateral loans

The Union Cabinet has approved the policy guidelines to permit financially sound State Government entities to borrow directly from bilateral ODA (Official development Assistance) partners for the purpose of implementing vital infrastructure projects. The approval is subject to fulfilment of certain conditions and all repayments of loans and interests to the funding agencies.
As a corollary to the new decision, the Mumbai Metropolitan Region Development Authority (MMRDA) has been permitted to borrow directly from Japan International Cooperation Agency (JICA) Official Development Assistance (ODA) loan for implementation of Mumbai Trans Harbour Link (MTHL) project.

Present guidelines

At present, external assistance from bilateral and multilateral sources is received by the union government for:

• projects/programmes in the Central sector;
• projects executed by Central Public Sector Undertakings;
• on behalf of the State Governments for State sector projects/programmes implemented by the State Governments and/or local bodies and public sector undertakings.

The existing guidelines prohibit State Government from borrowing directly from external agencies. In addition, the amount borrowed by the state governments would become a part of their FRBM (Fiscal Responsibility and Budget Management).

Salient highlights of new guidelines

• The State government which gets the loan will furnish guarantee for the loan and the Government of India will provide counter guarantee for the loan.
• The state entities can directly approach bilateral agencies and the funding would not fall under state FRBM target.
• The eligibility criteria for state entities would be a revenue of over Rs 1,000 crore.
• In case of infrastructure projects, the cost criteria will be Rs 5,000 crore.

Need

Major infrastructure projects of several State entities have huge funding requirements, and borrowing of the State Governments for implementing such projects exhausts their respective borrowing limits. Therefore, it was considered necessary to facilitate direct borrowing by the State Government entities from bilateral external agencies. As per the new guidelines, State entities can directly borrow and repay the loan without burdening the State exchequer.

Month: Current Affairs - April, 2017