May 07, 2000

Bankrupt Maharashtra
It has been a fairly short journey from Advantage Maharashtra to Bankrupt Maharashtra. The state barely managed to pay back the Rs 425 crore overdraft from the Reserve Bank of India in the end of April, by leaning on some State Government Undertakings to lend it the money. This week, it plans to go back to the RBI for a fresh overdraft of at least Rs 200 crore. At the same time, it is in the midst of formalising an ambitious borrowing and funding programme to tide over its monetary problems. This includes a proposal to raise a hefty Rs 5,500 crore through state guaranteed bonds for Krishna Valley-like schemes and projects at what is considered, by bankers, to be an outrageous interest rates of 18.5 per cent.

The argument goes that if the Irrigation bonds were raised at 16.5 per cent under the previous government, then after its credit rating downgrade it would have to pay more. This logic ignores the fact that interest rates have moved down since the irrigation bond days. The steep interest rate is attracting interest from Indian and foreign banks that have been approached so far. Also in the pipeline is the ambitious announcement that it will raise Rs 15,000 crore from multilateral agencies for old and pending projects.

The ALBM advantage
The National Stock Exchange (NSE) has reason to be grateful to the big industry house. The Bombay Stock Exchange (BSE) after BOLT was gaining rapidly on the NSE’s position as the biggest Indian bourse — in fact, the BSE had begun to beat the NSE’s turnover on occasion. Everything changed after the market meltdown when the Income Tax department investigated the Mauritius tax concessions. That day, brokers afraid that they would not be able to rollover their trading positions on to the BSE discovered the NSE’s Automated Lending and Borrowing Mechanism (ALBM) and got funded by the big industry house. From a measly turnover of Rs four-five crore, ALBM suddenly saw volumes shoot up to Rs 400 crore plus per settlement even though margins are higher and monitoring stricter. The NSE has since begun to widen the gap between its trading turnover and that of the BSE and badla volumes are down too. Naturally, the BSE is unhappy. We learn that the regulator is planning to conduct an inspection to check how the ALBM works.

Money first, reforms later
The power ministry, tired of browbeating financial institutions (FIs) to fund private power projects without escrow facilities is now reportedly ‘‘directing’’ them to do so. A news report says that if the State Electricity Boards (SEB) are willing to undertake reforms and set out a milestone chart then FIs should cough up the money and complete financial closure. But what happens if the SEB’s renege on their commitment? Will the FIs then hold back balance funding to the private projects?

And what happens to the money that is already invested? It is just too bad that several private power projects are stuck for funds, but that is not the problem of financial institutions. Few states have any control over power theft or their unionised SEB employees and until they can summon up the political will to push through reforms, the release of funds is foolhardy.

 

Updated weekly.

The author's e-mail address is: suchetadalal@yahoo.com

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