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How Maharashtra continues to grow despite the burden of debt

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Maharashtra, India’s largest economy in terms of GSDP, is estimated to grow at the rate of 9.4 per cent as per the state’s economic survey for 2016-2017. Hence, it comes as no surprise that Chief Minister Devendra Fadnavis is keen on making Maharashtra a trillion-dollar economy by 2025 (currently it is at $400 billion). To understand the magnitude of his ambition, one should be aware that there are currently only 16 countries whose value of economic output is more than $1 trillion. Apart from which, as per data from the International Monetary Fund, India entered this trillion dollar economy club in 2007.  However, the reality of the state’s debt looms dark over achieving such a target.

After the 2017 budget, the state had a total debt of Rs. 3.17 lakh crore. In the current fiscal, three supplementary demands amounting to Rs. 63,540 crores were granted to meet expenditure, majority of which went to the farm loan waiver scheme. Apart from which, the Finance Minister of the state has also assured that Maharashtra will commit to fulfilling the obligations of the 7th pay commission even though this adds to the current debt burden.

Yet, Devendra Fadnavis is unwavering in his goal to achieve a trillion-dollar economy by 2025, probably for two reasons. First, the prospects of the agricultural sector in the state have begun to shift. Although the debt problem itself can be attributed to a bad year for agriculture, the sector has begun to show promising growth. The share of the agriculture in the state’s GSDP saw an increase from around 7 to 12 percent between 2013 and 2017. The growth rate in the sector has been volatile in the last four years, yet it is estimated to grow at 12.5 per cent in 2016-17. This increase in the share of agriculture in the state’s GSDP and bounce-back in the growth rate is testimony to the fact that the state’s policies for asset creation in agriculture have begun paying off. Credit must be given to two notable initiatives—Jalyukt Shivir scheme which creates ponds/check dams wherever possible and the focus on animal husbandry, dairy farming and fisheries.

The second reason which might explain the chief minister’s optimism, is in his focus for an infrastructure led development. In the 2017 budget, a Special Purpose Vehicle (SPV) was proposed to fund infrastructure projects. This SPV called Maha-Infra would act as a single window for aggregating land held by various government departments for securitisation to raise money. The SPV is envisaged to raise Rs. 1 lakh crore in the next five years to finance capital expenditure of key infrastructure projects. According to a recent Credit Suisse report, the state is focusing on the growth of infrastructure, and is tapping extra-budgetary resources for infrastructure development, like the proposal to set up Maha-Infra. The idea is to raise alternative resources to push for implementation of crucial infrastructure projects, especially those related to mass transport systems such as Metro rail projects, Mumbai’s Trans Harbour Link, the Samruddhi Corridor.

The impetus given to improve the infrastructure, promote ease of doing business, introduce a digital framework for seamless business activities has also increased investor confidence. The State has attracted more than half (53 per cent) of the foreign direct investment (FDI) in the country last fiscal. Similarly, the Government initiative of organising the first ever Magnetic Maharashtra Investor Summit is noteworthy. As per the CM’s closing remarks at the summit, a total of 4,106 memorandums of understanding (MoUs) involving an investment of more than Rs. 12.10 lakh crore were signed.

Devendra Fadnavis’s dream for the economy of Maharashtra might seem like an unlikely one – an increasingly debt burdened state aiming to become a trillion-dollar economy sooner than speculated. However, his Government’s focus on agriculture and infrastructure led development seems to have immense potential in enabling such a dream. It will be interesting to note the ways in which the upcoming Maharashtra Budget will contribute to realising this ambitious story.

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