Now States Can Directly Seek International Funding For Infrastructure Projects

The Centre has given the go-ahead for financially stable state government entities to borrow directly from foreign lending agencies to support their infrastructure projects.

The government “has approved the policy guidelines to allow financially sound state government entities to borrow directly from bilateral ODA (Official Development Assistance) partners for implementation of vital infrastructure projects,” said an official statement.

The new funding option will benefit important projects like the Mumbai Trans-Harbour Link (MTHL). Finance Minister Arun Jaitley said as much of the Union government’s decision. Effectively, state entities can now borrow directly from foreign sources like the Japan International Cooperation Agency (JICA) to fund infrastructure projects.

Such a fundraising choice was earlier available for only the central government’s public sector units. The Mumbai Metropolitan Region Development Authority (MMRDA), a state government entity, can now borrow directly from JICA for executing the MTHL project. JICA is expected to provide a loan of Rs 15,109 crore for the project that will cost Rs 17,854 crore.

While state governments will furnish guarantee for such loans, the Centre will provide counter guarantee. The direct borrowings by state entities would not be included in the calculation of their fiscal deficits, under the states’ Fiscal Responsibility and Budget Management (FRBM) laws. Earlier, international funding was included in their FRBM, reducing their capacity to take extra funds.

“This will certainly help infrastructure creation and major projects in states,” said Jaitley.

Experts have welcomed the move that reflects a more vibrant federalism.