Maharashtra debt to mount to Rs 99,000 cr in 2 years

Shortly after he presented the state Budget late last week, Maharashtra Finance Minister Jayantrao Rajaram Patil is at his Vidhan Bhavan office.

Amid an interview he flits in and out of his room -- he has to attend the state legislature where he introduced the Stamp Duty and Registration Amendment Bill.

Patil is unfazed by the state's liabilities of around Rs 83,000 crore (Rs 830 billion)  today.

He told Business Standard that this was set to climb to Rs 99,000 crore (Rs 990 billion)  by the end of 2004-2005, after which it will begin to drop.

In the first of a two-part interview, Patil elaborated on, among other things, how he proposes to cut the state debt.

Have you presented an election Budget? Though the state's finances are deteriorating, provisions have been made to meet the government's social obligation to the backward classes. Can the state afford this?

This is not a soft budget. Secondly, elections in Maharashtra are slated for October 2004. There is one more Budget to go before that happens.

The government and the planning department with the held of the United National Development Project had prepared a human report for the state that brought out the issues related to health, tribals and education (the high incidence of dropouts).

It, therefore, became imperative to make provisions for these issues on pain of falling behind in respect of these social parameters.

As far as industry is concerned, it should understood that tax swaps and sops or reductions in tax rates are now a thing of the past.

You have estimated a Rs 2,000 crore (Rs 20 billion)  anticipated annual loss for Maharashtra once the value-added tax comes into force. How have you arrived at this calculation?

Last year, while the compensation formula was being worked out for all states that would lose revenue on account of VAT, we had factored in the revenue neutralisation as well as included the growth rate.

This was done while pegging the VAT rate at 17.5 per cent. However, the consensus decision has brought down the rate to 12.5 per cent, a 5 per cent reduction.

That means that the state will collect Rs 2,000 crore (Rs 20 billion) less.

How do you propose to bring the fiscal situation under control?

The state's outstandings are slated to rise to Rs 99,000 crore in two years, after which it will start coming down.

We have chalked out a plan to make this happen and signed a memorandum of understanding on the medium term fiscal reforms programme (MTFRP) with the Centre.

According to the formula worked out, the rate of growth in receipts and expenditure will be matched in two years, after which the expenditure curve will start going down, while the receipts curve starts going up.

One of the commitments under the MTFRP is a ceiling on the minimum support price (fixed at Rs 1,600 a quintal by the Centre) for the procurement of cotton from farmers under the cotton monopoly scheme. Yet in the winter session of the state legislature former chief minister Vilasrao Deshmukh promised to procure cotton at Rs 2,300 a quintal. Is this not a violation of the MTFRP pact?

Under the MTFRP we have committed ourselves to reducing the losses on account of the scheme.

This current fiscal has witnessed a loss on account of the cotton scheme that is the lowest to date. Imports and exports are opening up.

Private spinning mills have been allowed to directly buy cotton from farmers. Even the Indian Cotton Mills Federation of India has been allowed to do so.

The result is that the state, which procured 155 lakh (15.5 million) bales of cotton under the scheme in the last fiscal year, procured 25 lakh (2.5 million) bales thus far this year. And we are getting a good price for this cotton.

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