Finance dept worried about rising liabilities, wants govt to reduce committed expenditure
MUMBAI: The state finance department has expressed concern over rising liabilities and has stated that the government will have to reduce its revenue expenditure and rationalise its schemes. It has asked the public works department (PWD) to prioritise infrastructure projects, as financial resources need to be used judiciously. Finance dept worried about rising liabilities, wants govt to reduce committed expenditure
The department has suggested that megaprojects be undertaken on a build, operate and transfer (BOT) basis, which entails private players doing the build and operate part so that the exchequer is not burdened. This stems from the fact that the state has given guarantees of ₹ 51.44 lakh crore against contingent liabilities till 2024-25 and is spending 22 percent of its total generated revenue for repayment of loans and their interest.
The finance department made these remarks while approving funds of ₹ 20,878 crore for land acquisition for the 802-km Nagpur-Goa Shaktipeeth Expressway. The entire amount was taken as a loan from the Housing and Urban Development Corporation (HUDCO). It includes ₹ 12,000 crore for land acquisition and the remaining ₹ 8,787 crore for the payment of interest on the loan.
While approving the proposal, the department made certain observations and remarks. It stated that while preparing budgetary estimates for the 16th Finance Commission, it was observed that capital expenditure would grow at a CAGR (compounded annual growth rate) of over 10%, the fiscal deficit would exceed the FRBM (fiscal responsibility budget management) limit of 3%, ranging between 3.13% to 4.08%, and in the next four to five years, the debt to GSDP (gross state domestic product) ratio would reach up to 25%. Moreover, the growth in interest payments by the AA (Account Aggregator) would approach 14%.
The department stated that it had repeatedly expressed concerns about key aspects of project management and financial structuring of various major projects being undertaken by the PWD and its corporations. 'It is essential for them to prioritise the projects they have undertaken and ensure the optimal use of financial resources without spreading them too thin.'
Apart from suggesting the BOT model for projects, the finance department suggested that the PWD explore alternative financing sources outside the budget, including private investment through the PPP model, monetisation of assets and innovative financial instruments like Infrastructure Investment Trusts (InvITs). It also suggested the PWD prioritise its schemes, which the department has already moved on.
The finance department pointed out that HUDCO was giving the PWD a ₹ 20,878-crore loan at 8.85 percent interest, which was 2.1 percent more than what the government paid in the open market. It further asked why the PWD was going ahead with the land acquisition process without having all the environment clearances.
Dismissing reports that the remarks were 'objections', CM Devendra Fadnavis said it was the finance department's 'duty to point out things'. Defending the government's taking of loans, he said that every new highway opened doors for the economy. 'When we invest ₹ 12,000 crore in an infrastructure project, the return against the capital amount is multifold, as it expands our economy and also creates more capacity to repay the loan amount,' he said. 'Hence, all countries are developing their infrastructure by taking loans. It is a rule that a loan taken for developing infrastructure is considered as the best loan, as it strengthens the economy.'
According to the budget estimates for the financial year 2025-26, the state government is expected to have a total debt of ₹ 9,32,242 crore by March 2026. During FY 2025-26, ₹ 1,54,457 crore will be paid towards debt servicing— ₹ 89,798 crore will go towards repayment of the principal and ₹ 64,659 crore towards interest.
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