The Bihar government is in a tizzy over borrowing | patna | Hindustan Times
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The Bihar government is in a tizzy over borrowing

The Bihar government is in a tizzy over a move of the Centre that threatens to downsize its market borrowing and leave its development schemes significantly under-funded.

patna Updated: Jan 24, 2010 12:43 IST

The Bihar government is in a tizzy over a move of the Centre that threatens to downsize its market borrowing and leave its development schemes significantly under-funded.

The government had been planning its welfare agenda under the belief that it was permitted to borrow a maximum of Rs 6,289 crore by March 31, 2010 to remain eligible for the Centre’s debt waiver benefits.

But the Centre has now indicated that the upper limit of its borrowing might be much less than what it was counting on all along. When contacted, Deputy Chief Minister and Finance Minister Sushil Modi confirmed this.

“The borrowing limit is set at 4 per cent of Bihar’s GSDP (Gross State Domestic Product). But a gap has emerged between our perception of the GSDP and the Centre’s understanding of it”, Modi told HT.

He said the Centre had taken the stand the Twelfth Finance Commission’s projection of Bihar’s GSDP ought to be taken under consideration for setting the borrowing limit. “The problem is that projection is much less than the actual GSDP that the State has achieved during the four-year development thrust of the Nitish Kumar regime”, he explained.

The Bihar Finance Minister was not in a position to show immediately the extent to which the State’s borrowing could be hit by a lower GSDP calculation. “But it is clear that the hit will be significant”, he asserted.

Modi said he was trying to reason with the Centre to accept Bihar’s position. “But if the Union government persists with its stand, there’ll be genuine fears that funding of welfare schemes may be hit”, he admitted.

The hit taken by development schemes will be magnified by the enhanced pay and perks that the government has been announcing for various categories of its employees, which may require increased diversion of welfare funds to the State’s burgeoning establishment expenditure.

The government had been planning on exhausting the entire quantum of permissible borrowing by the end of the current financial year. In fact, during a meeting with Union Finance Minister Pranab Mukherjee earlier this month, Modi had urged him to permit Bihar’s fiscal deficit to rise to 5 per cent of the GSDP till 2010 so that it could borrow more.

But indications are that the State may have to settle for much less.