Boards, corporations can now borrow to fund mega projects

Faced with a severe financial crunch, the State government has allowed various boards and corporations to borrow money from the open market in a big way to implement big-ticket projects and schemes in the last two years.

Permission has been accorded to Krishna Bhagya Jala Nigam (KBJN), Cauvery Niravari Nigam (CNN), Karnataka Niravari Nigam (KNN) and Rajiv Gandhi Rural Housing Corporation (RGRHC) to borrow up to Rs 5,541 crore since the 2013-14 fiscal year. These corporations are implementing mega projects such as Upper Krishna Project-III, Yettinahole, Upper Bhadra and Basava housing scheme.

Also called off-budget borrowings, loans raised by these entities are, however, repaid by the government from its budgetary resources, sources in the Finance department said.

The State had in the 2008-2009 fiscal discontinued the practice of allowing off-budget borrowings in order to maintain transparency and accountability in its finances. The Karnataka Fiscal Responsibility Act, enacted in 2002 to bring in fiscal discipline, had barred the government from servicing loans raised by public sector undertakings and special purpose vehicles out of its budgetary resources.

Borrowings
The then BJP government headed by D V Sadananda Gowda had again allowed off-budget borrowings in a limited manner with an assurance to limit the quantum of the borrowings to the repayments of the previous year.

Permission was given for off-budget borrowings of about Rs 500 crore in 2011-12 and Rs 18 crore in 2012-13 fiscal, the sources said.

But the Siddaramaiah government, in February 2014, amended the Act to enable it to repay off-budget borrowings. Permission was accorded to borrow about Rs 1,914 crore in 2013-14 fiscal, and about Rs 3,500 crore in 2014-15 fiscal.

This includes Rs 1,541 crore by RGRHC to implement the Basava housing scheme and Rs 1,100 crore by KBJN to implement UKP-III and other irrigation projects in 2014-15, sources said.

Interestingly, the government had been repaying these loans out of the money it had been borrowing from the market to finance capital expenditure.

For instance, it had spent about Rs 350 crore of the total Rs 16,947 crore of capital account towards paying the principal amount of the off-budget borrowings in 2013-14. But the government has not shown the off-budget borrowings in its total liabilities till March 2014, the sources said.

The government has been facing shortage of money to implement its new schemes and projects due to substantial increase in subsidy expenditure (Rs 7,390 crore in 2011-2012 to Rs 18,454 crore in 2015-16).

As a result, it had very limited fiscal space for new schemes and projects. Hence, it decided to again allow off-budget borrowings in a big way, the sources pointed out.

Irrigation projects
When contacted, Water Resources Minister M B Patil said KBJN, KNN and CNN have raised loans to implement big irrigation and drinking water projects. Provisions have been made to repay the loans in the State budget.

RGRHC assistant general manager (Finance) B N Biradar said about 3.17 lakh houses for economically weaker sections have been built in the last two years under the Basava housing scheme. The Corporation has borrowed Rs 1,270 crore from HUDCO on the government guarantee for this purpose, he said.