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The Centre today permitted state government entities to borrow directly from bilateral overseas lending agencies like JICA to fund infrastructure projects.
The decision will directly benefit large infrastructure projects like the Mumbai trans-harbour link (MTHL), Finance Minister Arun Jaitley told reporters here after the Union Cabinet took decision in this regard.
An official release said 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.
The Mumbai Metropolitan Region Development Authority (MMRDA), a state government entity, has also been allowed to borrow directly from Japan International Cooperation Agency (JICA) for implementation of MTHL project.
The estimated project cost for MTHL is Rs 17,854 crore, out of which JICA loan portion is expected to be Rs 15,109 crore.
Jaitley said the decision will help create infrastructure as state government entities can now get funds for big projects.
While state governments will furnish guarantees for loans, the Centre will provide counter-guarantees.
External assistance today plays a supportive role in financing major infrastructure projects, social sector projects and in building up institutional capacity.
Jaitley said the decision will help states manage their Fiscal Responsibility and Budget Management (FRBM) targets.
Presently, external development assistance from bilateral and multilateral sources is received by the Government of India for projects/programmes in the central sector; for projects executed by central PSUs; and on behalf of the state governments for state sector projects/programmes.
The existing guidelines do not allow direct borrowings by the state government entities from external agencies.
Several state agencies are implementing major infrastructure projects. These projects, even if viable and sound, have huge funding requirements and borrowing by the state governments for such projects may exhaust their respective borrowing limits.
"This dispensation will allow the financially sound State entities to directly borrow and repay the loan required for major infrastructure projects without burdening the State exchequer," the release said.
The approval of these guidelines reiterates the central government's commitment to promote inclusive growth and strengthen the economy, it added.