The industry is worried over adverse impact of MP government’s financial woes on the forthcoming budget. The Madhya Pradesh government has taken a loan of more than Rs 6,000 crore in this fiscal year so far to tide over a liquidity crisis.
“The financial woes will definitely have an impact on this year’s state budget. The government is likely to curtail the tax concessions announced for setting up of big industrial units besides cutting down on subsidies,” Pithampur industry association president Gautam Kothari said.
As reported earlier in HT, the shortage of cash had forced the state finance department to issue a circular to various departments asking them not to incur expenditure above Rs 25 crore without its clearance. This cutoff limit has now been brought down to Rs 5 crore.
Another major impact would be restrictions on government purchases, mainly from the small scale sector.
"There is no crisis and nothing to be alarmed about," said an official in the finance department who did not want to be identified.
While the government is putting up a brave front, it is also keeping a hawk eye on the revenue collection.
The government recently hiked the VAT on petrol and diesel by 4% to shore up revenues. However, the move has been criticized by the industry.
“The VAT hike has led to an indirect increase in costs and is particularly harmful for exporters in the long run,” Kothari said.
The cash crunch was initially reported in September last year, just days before the Global Investors’ Summit in Indore. During a media interaction at that time, chief minister Shivraj Singh Chouhan had denied that the government was facing any cash crunch while refusing to elaborate on the subject.
The government also spent crores of rupees for organising the Global Investors Summit in October.
While it received investment proposals to the tune of Rs 5.89 lakh crore from the private sector, the money from lease of industrial land will arrive in tranches.
However, the government will have to spend a lot more for infrastructure development in the new industrial areas and will need to take more loans to fund the development projects.