The state government told Mr Wolfensohn that it was committed to reforms to make the budget transparent, to make fiscal situation sustainable through a medium-term fiscal policies framework, formulating plans for debt management to retire cheaper loans and increase in user charges in irrigation, drinking water, hospitals and veterinary services.

The state government in an exhaustive presentation prepared by a special team led by principal secretary for planning Asoke Basak admitted that it was seriously concerned about rising salary-related expenditure, mounting interest burden due to borrowings for meeting growing revenue deficits and drain in exchequer because of mounting losses of state undertakings and market intervention operations.

The government said it was aware of the high rate of subsidies particularly those in the non-merit category.

The state government reiterated that it was keen to correct the fiscal situation and urgently carry out fiscal reforms. However, it stressed on the need for the Bank's assistance for fiscal and economic restructuring and for qualitative improvements, innovations and adoption of best practices. The government, which had come under severe criticism for the slow pace of power sector reforms, said that it had already taken a decision to unbundle the loss-making Maharashtra State Electricity Board (MSEB) into three government-owned companies. The government added it would require the Bank's aid to carry out the unbundling and making the transition to the new structure. The government is also planning to table the Maharashtra Electricity Reforms Bill in the ensuing winter session of the state legislature. According to the presentation, the government would focus on streamlining 100 per cent energy audit through full metering.

Chief minister Vilasrao Deshmukh suggested that the Bank should take up reforms in the power sector, as one of the important programmes of the Bank in the state. "If you approve in principle, we will make specific proposals for consideration," he opined.

Mr Deshmukh urged the visiting chief for early sanction for the Mumbai Urban Transport Project and sought raising the loan ceiling of $500 million to $550 million as a special case. He informed Mr Wolfensohn that the relief and rehabilitation component of this project has already been launched in "anticipation of sanction from the Bank."

The government said that the Bank should sanction its funding latest by March 2001 for MUTP, as the effectiveness date should be retroactive from April 1 for relief and rehabilitation activities. The government added that MUTP-II should be taken up before the completion of MUTP-I, with a total investment of Rs 3,860 crore.

Regarding the drinking water programme, the government said it had already decided on a 10 per cent mandatory capital cost contribution to make projects demand-driven. The government has also decided on community participation in the choice of scheme, design & implementation and operation & maintenance.