Pun­jab Govt has been Liv­ing on Debt

State’s liq­uid­ity sit­u­a­tion be­came wor­ri­some in 2011-12 and it is now us­ing RBI’s ad­vances fa­cil­ity al­most ev­ery day

The Economic Times - - Companies: Pursuit Of Profit - Gay­a­tri.Nayak@ times­group.com

Mum­bai: Once the rich­est state in the country, Pun­jab now seems to be caught in a chronic liq­uid­ity cri­sis with the state govern­ment emerg­ing as one of the largest bor­row­ers of the Re­serve Bank of In­dia’s tem­po­rary lend­ing fa­cil­ity.

The govern­ment of Pun­jab has reg­u­larly availed RBI’s ways and means ad­vances (WMA) fa­cil­ity — a tem­po­rary liq­uid­ity sup­port ex­tended to cen­tral and state govern­ments for a few days — to meet its tem­po­rary rev­enue mis­matches in the govern­ment’s cash flows, ac­cord­ing to a re­port by rat­ings firm In­dia Rat­ings.

The state’s liq­uid­ity sit­u­a­tion be­came wor­ri­some in 2011-12 and ag­gra­vated al­most ev­ery year. In FY17 (bud­get es­ti­mate), Pun­jab pro­poses to use .₹ 19,500 crore from WMA fa­cil­ity, up from .₹ 17,000 crore in FY16 (re­vised es­ti­mate) and .₹ 9,268 crore in FY15, the re­port said. And the Pun­jab govern­ment has been us­ing this fa­cil­ity al­most ev­ery day; it availed this fa­cil­ity 315 days in FY15, up from 136 days in FY12. The num­ber of times it has availed an over­draft af­ter ex­haust­ing the WMA limit too, has been go­ing up, in­di­cat­ing the pre­car­i­ous state of Pun­jab govern­ment’s fi­nances.

WMA is a fa­cil­ity govern­ments use in ad­di­tion to reg­u­lar mar­ket bor­row­ings. It is of­fered at pre­vail­ing repo rates and at an ad­di­tional pe­nal rate of 2% in case of over­draw­ing. The fa­cil­ity was in­tro­duced in1997 in or­der to re­strict liq­uid­ity sup­port from the RBI by govern­ments and dis­con­tinue au­to­matic mon­eti­sa­tion of debt, a prac­tice un­der which govern­ments bor­rowed with­out re­strain.

Pun­jab’s liq­uid­ity prob­lem is so acute that from time to time the govern­ment has even used mort­gaged as­sets such as Gandhi Vanita Ashram for wi­d­ows in Ja­land­har and state jails at Bathinda, Am­rit­sar and Goind­wal to raise cash from banks, In­dia Rat­ings said.

The liq­uid­ity squeeze has been com­pounded by ris­ing debt. Pun­jab’s to­tal out­stand­ing li­a­bil­i­ties have more than dou­bled since FY09, and is the sec­ond high­est among non-spe­cial states as a per­cent­age of gross state do­mes­tic prod­uct at 31.4% (FY16 bud­get es­ti­mate).

The debt sit­u­a­tion is ex­pected to worsen as the govern­ment pro­poses to take over .₹ 15,632 crore debt from the Pun­jab State Power Cor­po­ra­tion Limited un­der Ujwal Dis­com As­sur­ance Yo­jana. Re­cently 30 banks led by the State Bank of In­dia de­cided to freeze lend­ing to Pun­jab fol­low­ing re­ports that stock of food grains worth .₹ 20,000 crore against which banks had lent to state govern­ment agen­cies went miss­ing from godowns in Pun­jab. The state has claimed to have pro­cured th­ese food grains af­ter tak­ing loans from th­ese banks.

As a re­sult, RBI had asked the banks to make pro­vi­sion for losses on food grain-re­lated loans is­sued to the state.

The cen­tral bank has al­lowed the state a cash credit limit of .₹ 17,523 crore to­wards the first in­stal­ment for wheat pro­cure­ment dur­ing the on­go­ing rabi sea­son.

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