KCR in Delhi: Less politics, focus on finance as state seeks to counter squeeze on borrowings

Centre agrees to release UDAY arrears

In his three-day tour, KCR  has managed to make officials persuade their counterparts in the Centre to release ₹10,200 crore in pending arrears to the state power utilities under the Ujwal Discom Assurance Yojana (UDAY), apart from extracting a promise to lift the entire custom milled rice lying with the rice mills in the state.

According to sources, the chief minister, who was unhappy with the public sector funding institutions for asking the state to get the Centre’s approval for even releasing the balance instalments of loans on which both the parties had signed agreements in the past, asked his officials and the TRS MPs to use their persuasive skills to secure the release of funds, mainly form PFC and the REC.

The chief minister is understood to have been upset by the new restrictions on borrowings, which had crippled the state’s finances. Though no evidence could be found that it was being done out of spite as KCR had been criticising Prime Minister Narendra Modi using very harsh language, one would get the impression that the BJP may have had an axe to grind when the Centre came tough on the state

Restrictions on borrowings

In March itself, it has been made very clear to the state that if the servicing of the loans raised by corporations is done from the state budget, such loans should be considered as the state’s loans. After the advent of the FRMB Act, a state cannot resort to borrowings of more than 3.5 percent of the state’s GSDP.

As the state’s GSDP is estimated to be ₹12,20,804 crore, it would be allowed to go in for borrowings up to ₹42,728 crore. If the state implements reforms in the power sector, the Centre said it would allow another 0.5 percent. But the loans raised by state government corporations are not being shown as borrowings of the state.

This has resulted in the state ending up with more debt than permitted under FRBM. To check this tendency, the Centre had brought in the new rule which the state government opposed vehemently as it would mean a drastic cut in borrowing which would squeeze liquidity.

Financial arm-twisting

KCR is angry with the prime minister for allowing the Union Finance Ministry to resort to arm-twisting in this fashion as the state would need liquid cash to meet its commitments, including for welfare schemes such as Rythu Bandhu and Dalit Bandhu, and for social security pensions — apart from payment of salaries to the state government employees which is also being delayed in the recent past on account of lack of liquidity.

The BJP keeps making allegations that the irrigation projects, including the Kaleshwaram Lift Irrigation Scheme, have become ATMs for the TRS and that is why, it is believed, the Centre is trying to make the path rough for the TRS going forward as money is very important commodity in fighting the next assembly elections.

Though there is no way to prove this allegation, as the FRBM Act had been brought to see that the state’s economy does not collapse under the weight of debts, there is a lingering suspicion that there might be a political motive behind the squeeze.