Maharashtra to enact tough laws to get out of the fiscal mess

MUMBAI: With bankruptcy looming large and debt touching Rs 83,000 crore, the Maharashtra government is trying to bring in an act to restore the fiscal situation.
The state government, this week, is all set to present the Maharashtra Fiscal Responsibility and Budgetary Act ''02 to the Assembly.
“The proposed act aims to bring in transparency in revenue and expenditure estimates, and regulate borrowings and subsidies comprehensively,� a functionary associated with the process told ET.
The bill makes it mandatory on the incumbent government to recognise all liabilities in the Budget and to ‘explicitly’ state the estimated growth of revenue.
Once passed by the Assembly, the government shall have to disclose its debt burden and equity holdings in various entities so that the revenue deficit and assets are correctly reflected in the accounts.
The proposed act will cap the state’s borrowing limit and guarantees as well. “The growth rate of the borrowings should be half of the growth rate of revenue,� the bill says.
It also provides for a mechanism of expenditure curtailment to ensure that there is no spilover or accumulation of liabilities from one year to another.
Another striking feature is that the government will not be allowed to introduce supplementary appropriations without providing finances.
“The government more often makes various announcements without making any budgetary provision to fulfil the same. The act will prevent this trend,� a senior official associated with the exercise told ET.
The government, after the passage of the bill, shall have to create a ‘Doubtful Loan and Equity Fund.’ The amount transferred and credited in this account shall be “expended for meeting the loss, if any, on account of bad loans and equity,� says the bill.
Every year the Budget makes provisions for various schemes like the MLA fund. Normally, the expenditure on such schemes is never curtailed due to political considerations.
However, the new act promises that 20% of the appropriations from the Budget will be flexible and “subject to reduction if revenues do not move as per the Budget assumptions.� It will also control the salary expenditure.
The act provides framework for the government to come out with its priorities for capital expenditure and ensure completion of projects in a realistic time frame.
However, the most important feature of the proposed act will be a creation of an independent mechanism to ensure fiscal discipline. The Fiscal Advisory Board would provide an independent advice to the government.
The Board will also give an accurate picture of the state’s fiscal health to the people at large. “This will develop enough pressure on the government to adhere to fiscal targets,� said an official.