Maharashtra government can learn from principles of personal finances
The state has run out of finances again and is looking to the World Bank to pull its chestnuts out of the firemumbai Updated: May 22, 2018 21:16 IST
Fiscal prudence does not seem to be the hallmark of the Shiv Sena-BJP alliance in Maharashtra.
Amid reports suggesting that the state is facing a credit crunch again, I recall how the then finance minister of the state, Ramrao Adik, had gone down on his knees to then chief minister Sharad Pawar begging him not to allow the alliance to form the government in 1995. Adik had begun his political career as a Shiv Sainik and had no illusions about the limited understanding of governance by Bal Thackeray and his supporters.
“They will mess the state up in five years and we will have to spend the next 15 pulling those chestnuts out of the fire,” he told Pawar who, however, was unwilling to go against the popular mandate.
The Congress was the single largest party and there were 45 rebel MLAs along with whom Pawar could have cobbled together a coalition. But he thought that kind of government would be subject to continuous blackmail and put too much pressure on the finances. He agreed with Adik that the Sena-BJP would not be able to manage those contradictions but was of the view that they should nevertheless be allowed to form the government simply for people to be able to see for themselves the difference between them and the Congress.
“Not five. Give them just three years. If they do not mess up in that little time, I will quit politics forever,” he said.
At the end, both he and Adik proved prophetic. In less than three years the Sena-BJP government had drawn on their overdraft with the Reserve Bank of India more times than during comparative time frames by previous governments. And within three years all their projects were at a standstill for lack of cash flows.
I asked Adik then if he felt vindicated. “At what cost to the state?” he replied sadly.
When I asked him how he would have handled all the ambitious projects of the Shiv Sena-BJP government, including their flagship 55 flyovers to ease traffic in Bombay, his solution was both simple and deeply profound.
“You just need to apply the simple principle of personal finances to government expenditure,” he said. “You do not spend more than you can earn. You do not borrow more than you can reasonably pay back in good time. You never overexpose yourself or stretch yourself beyond capacity. And you always put something by for a rainy day.”
Predictably in the next couple of years things went so wrong for the Sena-BJP that the Congress had little difficulty in storming back to power despite a split in its ranks by Pawar. Together with the NCP it did take them the next 15 years, as Adik had predicted, to clean up the mess left behind by their predecessors – including with regard to a renegotiated deal with Enron which, had it been honoured, would have bankrupted Maharashtra beyond redemption.
But now, with just a little over three years into the current dispensation, the state has run out of finances again and is looking to the World Bank to pull its chestnuts out of the fire. Much of the shortfall is said to be on account of last year’s loan waivers for farmers. That is money the government did not have to spend and yet did.
I always believed chief minister Devendra Fadnavis had begun rightly by refusing to waive those loans and not simply on account of the inevitable financial burden on the government. There are many other sound reasons why such loan waivers are not a good idea but Fadnavis’ lack of tact in handling the issue complicated matters. The farmers’ ire grew beyond reasonable proportion and the government had to give in even as Union finance minister Arun Jaitley made it clear there would be no financial support from the Centre.
Fadnavis then thought to take tips from the Uttar Pradesh government,wherein the newly appointed chief minister Yogi Adityanath had announced a similar loan waiver to be offset by corporate bonds. But no corporates were willing to pick up the tabs either in Lucknow or Mumbai. While UP farmers then received waivers of rupee one, Maharashtra made a more sincere effort by skimming unutilised funds from budgets of other departments to fund its own farm loan waivers.
The government has made similar efforts to fuel its other ambitious projects including the chief minister’s pet Nagpur-Mumbai Samruddhi Expressway. But obviously that is not enough. The World Bank, of course, will not lend unless the government can, as Adik said, reasonably pay back. But given the Sena-BJP’s proclivities, the fear remains his words may come back to haunt the state again.