Debt swap for States

NEW DELHI JAN. 28 . The Centre's fiscal deficit is likely to look better with all States except Maharashtra and West Bengal, agreeing to exchange high cost interest bearing bonds with softer loans. The debt swap could begin "very soon, this week or this month as 26 States have agreed to the Centre's debt swap proposal,'' the Finance Secretary, S. Narayan, told presspersons here today.

Maharashtra and West Bengal are the two States that have not agreed and they account for nearly 40 per cent of the loans to the States, mostly from small savings accruals. These two States want the swap proposal improved upon.

The debt swap proposal was mooted earlier in this fiscal in view of the massive loan burden of the States, collectively put at Rs. 580,000 crores. The annual interest burden of all States put together works out to nearly Rs. 70,000 crores. Responding to the proposal from the States, the Centre agreed to swap debts worth Rs. 25,000 crores with Rs. 15,000 crores on account of small savings and the remaining for market borrowings by States. Over the next four year, the Centre proposed to exchange high cost debts worth Rs. 110,000 crores.

Through this mechanism the Centre intended to provide a relief of at least Rs. 1,000 crores to the States. On their part, early repayment of loans would brighten up the Centre's fiscal picture.

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