Jalan warns States against default on Govt guarantees

With many States including Maharashtra defaulting on their repayment commitments, the Reserve Bank of India governor Bimal Jalan on Thursday...

With many States including Maharashtra defaulting on their repayment commitments, the Reserve Bank of India governor Bimal Jalan on Thursday warned State governments saying the issue of guarantees is acquiring greater importance as it could have an impact on their market borrowings.

He flashed the red signal against defaults while inaugurating the 11th annual meeting of state finance secretaries in Mumbai. “It was also equally important that state governments honour the guarantees given by them,” Jalan reminded the secretaries.

He cautioned that the States, which default in honouring the guarantees, could get fewer response when they approach the market for their borrowings. The meeting, which was attended by finance ministry and Planning Commission representatives and chaired by RBI deputy governor Rakesh Mohan, discussed various subjects, including that of overdrafts, ways and means advances and fiscal positions of the States.

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The RBI convened the crucial meeting with finance secretaries of all states to discuss issues related to fiscal risk on state government guarantees, borrowings of state governments, default on guarantees and bonds of state governments, fiscal responsibility bill, ways and means advances of state governments and debt swap scheme of the Centre.

The situation on the guarantee front is alarming. The trends in outstanding guarantees of state governments indicate that in respect of 24 States including Maharashtra, outstanding guarantees increased to Rs 1,33,062 crore in 2000 and further to Rs 1,69,562 crore in 2001 from Rs 40,317 crore in 1992.

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