The Reserve Bank of India has expressed concern that the cumulative guarantees given by the State governments has been on a rising trajectory over the past few years.
Amongst major States, Telangana, Rajasthan, Andhra Pradesh, Uttar Pradesh and Chhattisgarh had issued guarantees amounting to over five % of their GSDP. It is noteworthy that in case of some of these States, the quantum of outstanding guarantees now compares sizeably to their existing debt stock, the bank said in its latest bulleting issued on Tuesday.
It quoted outstanding guarantees in respect of Telangana, Andhra Pradesh, Rajasthan and Uttar Pradesh were now more than a fifth of their total outstanding debt. “Telangana, in particular, stands out from the rest of the larger States with highest contingent liabilities to GSDP ratio at around 9.4 %,” the RBI said.
Although guarantees were not explicit debt, they had the potential to drain States’ budgetary resources in the case of their invocation. “Indiscriminate issuances of guarantees may also harm the banking sector as the loan sanctioning agencies might have been issuing credit only on the strength of the guarantee issued by the State without undertaking requisite due diligence,” the Apex Bank said.
The Comptroller and Auditor General of India too flagged the issue pointing out that the government did not ensure financial performance and accountability of the institutions before providing guarantees. In its State Finances Audit Report for fiscal year 2020-21, the CAG said although the percentage of the total outstanding liabilities to GSDP at 28.11 % was within the limit of 29.5 % prescribed by the XV Finance Commission, this would be way above the limit at 38.1 % if the off budget borrowings of ₹97,940.45 crore were considered. The outstanding guarantes have since crossed ₹1 lakh crore mark and reached ₹1.05 lakh crore at the end of 2021-22.
The Union Finance Ministry on its part has imposed conditions on the market borrowings of the State on the grounds that OBBs raised in the name of State-owned corporations would be brought under the purview of the FRBM Act.
