Cash crunch forces Madhya Pradesh to tighten purse strings

  • Rahul Noronha, Hindustan Times, Bhopal
  • Updated: Sep 25, 2014 21:54 IST

The Madhya Pradesh government has tightened its purse strings to tide over an acute liquidity crisis, described by officials as "temporary". The shortage of cash has forced the state finance department to issue a circular, asking departments not to incur expenditure above Rs 25 crore without its clearance.

The cash crunch, incidentally, comes days before the big-ticket Madhya Pradesh Global Investors' Summit, starting in Indore on October 9 and aimed at showcasing the state as a major investment destination for overseas and domestic industrialists. Prime Minister Narendra Modi will inaugurate the three-day summit.

A government official said that the finance department’s notification was in response to a "temporary liquidity crisis" and would be withdrawn within a month.

Sources in the state government said that earlier standing instructions mandated that payments above Rs 50 crore had to be made after clearance from the finance department.

In early September, the state finance department issued the fresh circular reducing this limit to Rs 25 crore.

Sources pointed out that the bulk release of about Rs 1,000 crore for payment as compensation to farmers has contributed to the temporary liquidity crisis.

Also, funds from certain departments of the Union government were delayed too.

The state government had to pay about Rs 500 crore as wages under MNREGS from its own coffers as arrival of funds from the Centre were delayed owing to the vote-on-account of the Union government.

"There is a legal requirement for wages to be paid within a certain time-frame. If the funds do not arrive from the union government, the state government has to make payments in MNREGS for the time being," another state government official said.

"The liquidity crisis is temporary and would be addressed within a month," the official added.

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