After Dabhol, Govt finds guarantee load of Rs 100,000-cr

Here’s a positive spin-off of the Dabhol disaster. The government has woken up to the huge burden of counter-guarantees and has initiat...

Here’s a positive spin-off of the Dabhol disaster. The government has woken up to the huge burden of counter-guarantees and has initiated a set of measures to streamline the system.

In a meeting on May 17, Finance Minister P Chidambaram set the agenda for financial advisers, asking them to monitor each loan under their ministries. The reason: In a recent exercise, the government found out its ‘‘contingent liability’’ on account of counter-guarantees for loans for various projects stood at over Rs 100,000 crore.

The exercise was launched after the rude shock over Enron’s Dabhol fiasco which left the Centre with a bill of Rs 3,000 crore from overseas lenders.

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Now the Ministry of Finance has decided that beginning next year, a statement of the government’s liability in terms of the guarantees—in case of loan defaults—would be presented to Parliament along with the Budget.

The ministry has also launched an effort to get every ministry and department to report to it the guarantees they have given and also update their books on loans which may have outlived their original term.

	THE BURDEN

			Total guarantees of the Centre as on March 31, 2005: Rs 1,01,427 crore Total guarantees available for 2005-06: Rs 22,400 crore Some huge guarantees of 2004-05 • Rs 586 crore for National Hydroelectric Corporation (NHPC) • Rs 540 crore for SIDBI’s loan from World Bank • Rs 300 crore for Hindustan Machine Tools • Rs 238 crore for Indian Telephone Industries for their VRS

This would make the system transparent and put a cap on the maximum counter-guarantee that the government could give in a year. The government has fixed the level at 0.5 per cent of the GDP in a single year.

Last year, the Centre guaranteed Rs 17,400 cr for projects with redemptions worth Rs 5,000 crore for loans that were retired. For the current year, the Finance Ministry has allowed up to Rs 22,400 crore worth of fresh guarantees.

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