Maharashtra Finance Department Releases Guidelines for Externally Supported Loans

Mumbai, April 8 (NationPress) In response to the increasing demand for funds due to limitations in internal revenue generation, the Maharashtra Finance Department issued a notification on Tuesday outlining the guidelines for externally supported loans aimed at financing various state projects.

The Finance Department emphasized that the relevant authorities must ensure that while securing these loans, the revenue and fiscal deficits remain within the thresholds defined by the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.

“External assistance loans fall under the Net Borrowing Ceiling sanctioned by the Central government. Therefore, while obtaining external assistance loans, they must adhere to the limits set for the second financial year according to the FRBM Act, and remain within the approved Net Borrowing Ceiling,” stated the government notification.

The state government is obligated to maintain the fiscal deficit at 3 percent of the GSDP as mandated by the FRBM Act. The budget for 2025-26 has successfully kept the fiscal deficit at 2.7 percent, a reduction from 2.9 percent in the previous fiscal year. The guidelines clarify that these loans should not be perceived as a means to satisfy financial demands.

According to the guidelines, “These loans must solely be utilized for the execution of tasks and procurement of goods and services essential for the specific project as stipulated in the Project Agreement.”

“The state government bears the responsibility for implementing the project in accordance with project specifications, including implementation charges and foreign exchange risks associated with external assistance loans granted to state governments. The relevant administrative department must ensure project efficiency in line with project specifications,” noted the notification.

External assistance is predominantly provided through multilateral and bilateral agencies, as well as international financial institutions such as IBRD, IDA, IFAD, ADB, NDB, KfW, JICA, and through the Central government.

The guidelines also require the administrative department to request a loan to develop a Preliminary Project Report (PPR) with assistance from the Maharashtra Institution for Transformation (MITRA).

Established in November 2022, MITRA aims to facilitate rapid and comprehensive state development in alignment with NITI Aayog policies through private sector and NGO participation, addressing state needs. The relevant department must obtain the chief minister's approval for obtaining externally supported loans based on the PPR.

Upon receiving the Chief Minister's endorsement, it will be submitted to the Department of Economic Affairs (DEA). Following an 'approved' remark from the Planning Department, it will be presented to the pertinent ministries at the Centre and NITI Aayog. Once the DEA screening committee approves, a detailed project report (DPR) will be compiled promptly.

“The Detailed Project must adequately represent the strategic elements of techno-economic (economic viability, social cost benefit, value addition, etc.), ecological (land use, ecological sustainability, etc.), socio-cultural (target population and gender considerations, participation, social impact, etc.), and institutional (institutional and organizational analysis, capacity building, training, etc.) dimensions in measurable terms. An objective-oriented project design in a matrix format along with a work plan, cost and time schedule indicating targets/outputs, cash flow statement, etc. should also be included in the DPR,” stated the guidelines.

(Sanjay Jog can be contacted at sanjay.j@ians.in)