Maharashtra govt’s plan to ease cap on spending hits a hurdle

The cap on spending, which happens to be the deepest ever cutback imposed in Maharashtra, had resulted in a total freeze on commissioning of new development works. Barring procurements of infrastructure and items required for combatting the Covid-19 pandemic, state departments were ordered to withhold tenders for new purchases and approvals for new development works.

Following some improvement in cash flows in June and July, the state had earlier partially lifted the cap mid-July, permitting new development works using Local Area Development (MLA-LAD) funds allocated to legislators.

While plans to announce further easing of curbs were in the works, the Centre’s stance regarding outstanding GST payments might force the state’s fiscal managers to rethink plans, said senior officials.

At the GST council meeting on Thursday, the Centre shot down Maharashtra’s demand that outstanding GST compensation payment be met either through its consolidated fund or loans raised by the Union government. Contending that the lockdown had severely hit GST collections, the Centre asked the states to consider the option of meeting the shortfall by borrowing from the Reserve Bank of India.

Finance Minister Ajit Pawar said the Centre is yet to pay Rs 22,435 crore in GST compensation dues accumulated since April to Maharashtra.

The state’s fiscal managers have projected that the GST shortfall will soar to Rs 50,000 crore by December end. If the Centre does not concede to the state’s demand, then Maharashtra will have to incur additional borrowings on the account, raising the debt servicing bill and impacting the cash flows further.

In the first quarter of 2020-21, the state’s revenue, severely hit by the lockdown, was just Rs 40,700 crore as against a target of Rs 84,000 crore. The sharp dip in income has already forced the government to borrow to meet its monthly salary bill of Rs 12,000 crore.

Senior officials said the state has so far borrowed Rs 45,000 crore, which is 87.5 per cent higher that its initial projection of Rs 24,000 crore.

As of August, official statistics show that only 20 per cent of the amount set aside for scheme expenditure has been spent. At the start of the year, the state had budgeted a capital outlay of Rs 45,124 crore, which was already 2.6 per cent lower than in 2019-20. A total spend plan of Rs 4.34 lakh crore was announced in the budget for 2020-21. But the 67 per cent spend cut has thrown it off gear.