In big infra push, Centre allows states to borrow directly from overseas lenders

The move marks a shift from the existing procedure that bars state government entities from borrowing directly from external agencies
Finance Minister Arun Jaitley said the move will... Source: PTI
India TV Business Desk New Delhi 20 Apr 2017, 12:10 PM IST

In a development that could provide a much-needed push towards accelerating the pace of infrastructure development across states, the central government on Wednesday allowed state governments to borrow directly from overseas lenders to fund major infrastructure projects.

The move marks a shift from the existing procedure that bars state governments and its entities from borrowing directly from external agencies. Existing rules allow borrowing to the extent that its fiscal deficit does not exceed the limit of 3 per cent of its gross state domestic product (GDP).     

"Several State agencies are implementing major infrastructure projects of national importance. These projects, even if viable and sound, have huge funding requirements and borrowing by the State Governments for such projects may exhaust their respective borrowing limits," the Finance ministry said in a press statement.

Under the current procedure, external development assistance from bilateral and multilateral sources is received by the central government for projects in the central sector; for projects executed by central PSUs; and on behalf of the state governments for state sector projects.

However, the new norms will allow financially sound state entities to directly borrow and repay the loan required for major infrastructure projects without burdening the state exchequer.


So, for an overseas borrowing for a major infrastructure project by a state government entity, the concerned state government will furnish the guarantee and the Centre will provide a counter guarantee for the loan.

The move is going to yield an immediate benefit for large infrastructure projects like the Mumbai trans-harbour link (MTHL), the Finance ministry said.

The new policy change will allow Mumbai Metropolitan Region Development Authority to borrow directly from the Japan International Cooperation Agency a Rs 15,109 crore loan to implement the Rs 17,854 crore Mumbai Trans Harbour Link project.

"The Mumbai Metropolitan Region Development Authority (MMRDA), a State Government entity, has also been allowed to borrow directly from Japan International Cooperation Agency (JICA) Official Development Assistance (ODA) loan for implementation of Mumbai Trans Harbour Link (MTHL) project," the Finance Ministry said.

The estimated project cost for Mumbai Trans-Harbour Link (MTHL) is Rs.17,854 crore, out of which JICA loan portion is expected to be Rs.15,109 crore.

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