TS debt may hit city plans

High level of state debt likely to mar GHMC’s borrowing plans for city

A big question mark looms large over the announcement made by Chief Minister K. Chandrasekhar Rao that the state government would give guarantee for GHMC to borrow `20,000 crore from financial institutions to transform Hyderabad into a global city by providing better civic amenities and world class infrastructure facilities.

The government has so far given guarantees to 22 institutions, which together borrowed `26,140 crore; the government still owes `365 crore towards payment of interest. Financial institutions are already bringing pressure on the state government to pay a part of the principal and interest. Given this situation, officials said the possibility of them lending `20,000 crore to a single institution like GHMC looks remote.

The government had earlier tried to raise loans amounting to `70,000 crore from BRICS Bank for the development of the city but the Centre turned down the request.

With the state governments increasingly taking ‘guarantee route’ to raise loans to beat the borrowing limit set by the Fiscal Responsibility and Budget Managemebt Act, the Centre and Reserve Bank of India too are cautioning financial institutions against lending huge loans based on guarantee provided by state government. This is because the responsibility of repayment of these loans lies with the state government if the institutions default.

Since all these institutions are governmentowned and depend on funds released by the government for their survival, the responsibility of repayment of these loans lies entirely with the state government, which is already utilising its full FRBM limit every year to raise loans.