'States can borrow directly from foreign agencies for infra projects'

New Delhi: The government on Wednesday allowed state entities to borrow directly from bilateral overseas lending agencies like JICA to fund infrastructure projects.

The decision would directly benefit important projects such as Mumbai trans-harbour link (MTHL), Finance Minister Arun Jaitley told reporters here.

The decision was taken by the Union Cabinet chaired by Prime Minister Narendra Modi.

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," an official statement said.

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.

The guidelines will help state entities to directly borrow from the external bilateral funding agencies and they would have to repay the loans and interests.

While state governments will furnish guarantee for the loan, the Centre will provide counter guarantee.

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.