Maharashtra seeks central bailout

In a desperate bid to tide over the acute liquidity crunch in the state, Maharashtra Chief Minister Sushil Kumar Shinde on Wednesday dashed an SOS to Prime Minister Atal Bihari Vajpayee seeking a bailout package.

The proposed package has three components: a fresh tranche of soft loans, reschedulement of central loans to the state and rollover of the loans given by financial institutions.

According to the state secretariat (Mantralaya) sources, the CM has sought a Rs 1,500 crore (Rs 15 billion) soft loan from the Centre.

The chief minister's letter to Vajpayee also seeks a reschedulement of the principal and interest payments due on central government loans.

Besides, Shinde also wants the Centre to impress upon the Reserve Bank of India to direct financial institutions and banks to roll over the loans raised by various state government entities that are due for repayment during this fiscal.

These bonds were floated by various special purpose vehicles set up by the state on the instructions of the central government.

Shinde has pointed out to Vajpayee in his letter that if the Centre is unable to bail out the state government through this Rs 1,500 crore soft loan, it would result in serious problems of regulatory, developmental and social security in Maharashtra.

Incidentally, a recent World Bank report on Maharashtra's financial situation has warned that the state is headed towards an insolvency situation by fiscal 2005-06 unless its revenue and fiscal deficits besides debts (including off-budget borrowings) are reined in.

The report also comments on the liability overhang (estimated at Rs 4,000 crore -- Rs 40 billion -- by the state finance department at the beginning of the fiscal 2002-03) with the treasury issuing cheques from revenues collected in a current year to pay for the expenditure incurred in the previous year.

Commenting on the liquidity crunch in the state, the World Bank report says that the state would not be able to cope with such a high level of debt and deficits.

"The state is experiencing liquidity problems of unprecedented magnitude. Maharashtra has been in overdraft (after breaching the limit for normal and special ways and means advance from the RBI) for 118 days during the first 11 months of 2001-02, as against 31 days in the previous fiscal and seven days in 1997-98."

"The total amount of overdraft exceeded Rs 29,000 crore (Rs 290 billion) during 2001-02 as against Rs 5,200 crore (Rs 52 billion) in 2000-01," the report added.