The Union Finance Ministry on Thursday said that state government entities can now directly seek loans from bilateral overseas lending agencies for infrastructure projects of over Rs 5,000 crore.
Earlier, the rules did not permit direct borrowings by the state government entities from external agencies. Only, the central government could have raised external funds on behalf of state governments.
"It has been decided to allow direct borrowing by financially sound state government entities from bilateral ODA (Official Development Assistance) partners, based on State Government Guarantee and Government of India counter guarantee" subject to certain conditions.
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State government entities will include any 'authority', public sector undertaking or organisation of the state. The guidelines prescribe that loans can be obtained by state government entities having an annual revenue of more than Rs 1,000 crore in the three previous years for infrastructure projects of over Rs 5,000 crore.
"The project should have regular revenue stream -- the revenues to be generated from the project should be enough for repayment of principal amount and interest," the ministry said. The revenues from the project would be escrowed to the extent of payment of principal and interest from time to time.
The relaxation is aimed at funding major infrastructure projects, social sector projects and building institutional capacities. It would help state government agencies in implementing projects having huge financial requirements which otherwise would have been faced fund crunch despite being viable.