Press Information Bureau

Government of India

Ministry of Finance

15-May-2012 16:41 IST

Bailout Package for DEBT Stressed States

Vide office memorandum no. 4(5)/ FRU/2004 dated 4th August, 2004, States were advised to obtain concurrence of the Department of Expenditure before availing loan from external agencies.  A debt stressed State was defined as one whose ratio of consolidated debt and liabilities to total revenue receipts exceeded 300% (200% in case of special category states).  Subsequently, vide office memorandum no. 4(5)/ FRU/2004 dated 24the October, 2005, States were asked to obtain concurrence of the Department of Expenditure before availing external assistance for structural adjustment loans as also for projects.  A debt stressed State was defined as one with interest payments to total revenue receipts ratio higher than 20 percent.  A tentative indicative list of debt-stressed States, based on the States’ 2004-05 (RE), was annexed to this office memorandum, in which Kerala, Punjab and West Bengal were there of the eleven States included.

In accordance with the recommendations of the Twelfth Finance Commission (TFC), whose award period was 2005-10, the following public debt and interest relief measures  have been extended to the States, upon their enactment of the prescribed Fiscal Responsibility and Budget Management Acts (FRBMA):

(i)           Central loans from Ministry of Finance contracted till 31.3.2004 and outstanding as on 31.3.2005, amounting to Rs. 113601.14 crore, were consolidated for a fresh tenure of twenty years from 1.4.2005 at an interest rate of 7.5% per annum, for 26 States that had enacted their FRBMAs.

(ii)          Debts owed to the Ministry of Finance, amounting to Rs. 19725.81 crore have been waived for States based on their fiscal performance during TFC’s award period.

In accordance with the recommendations of the Thirteenth Finance Commission, the following public debt and interest relief measures have been extended to the States, upon their enactment/ amendment of the prescribed FRBMA:

(i)           Central loans from Ministry of Finance contracted till 31.3.2004 and outstanding as on 31.3.2010, amounting to Rs. 113.45 crore and Rs. 8633.50 crore in respect of the two States, Sikkim and West Bengal respectively, which enacted their  FRBMAs in 2010-11, were consolidated for a fresh tenure of twenty years from1.4.2010 at an interest rate of 7.5% per annum.

(ii)          A decision to write-off loans for Centrally Sponsored Schemes/ Central Plan Schemes (raised from ministries other than Ministry of Finance) outstanding at the end of 31.3.2010 has been taken.  Central loans amounting to Rs. 2050 crore have been written off so far.

(iii)        Loans contracted by States from the National Small Savings Fund till 2006-07 and outstanding at the end of year preceding the year of amendment/ enactment of FRBMA, have been reset at 9% interest rate from the date of amendment/ enactment of the FRBMA.  Interest relief benefit of Rs. 36.08 crore for 2010-11 and Rs. 1060.21 crore for 2011-12 has been extended to the States so far. 

This information was given by the Minister of State for Finance, Shri Namo Narain Meena in written reply to a question in the Rajya Sabha today.

*****

DSM/SS/SL

Fiscal responsibility-linked debt relief: consolidation, waivers and interest resets conditioned on FRBM Act enactment or amendment. Debt relief and restructuring measures for states are conditioned on enactment or amendment of Fiscal Responsibility and Budget Management Acts (FRBMAs). Eligible central loans outstanding on specified reference dates were consolidated into fresh long-tenure loans at prescribed interest rates for states implementing FRBMAs; waivers or write-offs of central plan and centrally sponsored scheme loans and interest-rate resets for National Small Savings Fund borrowings have been granted following FRBMA compliance, producing quantified interest-relief benefits. Earlier guidance required Department of Expenditure concurrence for external assistance and set threshold definitions for identifying debt-stressed states.