Financial Daily from THE HINDU group of publications
Friday, Oct 18, 2002

News
Features
Stocks
Port Info
Archives

Group Sites

Home Page - Economy
Government - States
Industry & Economy - Economy


Only a few takers for debt swap

Our Bureau

NEW DELHI, Oct. 17

THE much-publicised debt swap scheme for States — which entails retiring high cost loans of around Rs 90,000 crore in a span of three years — may have only a few takers in the current fiscal, despite the sweeteners being offered by the Finance Ministry.

The debt swap is aimed at reducing the fiscal stress for States, which are now reeling under the burden of repayments of loans contracted at an average rate of over 13.5 per cent over a decade ago. With interest rates now significantly lower averaging at close to seven per cent, substituting these high cost loans with low interest bearing loans would provide substantial relief to States.

In the proposal to be discussed at the meeting of the Chief Ministers here on Friday, the Finance Ministry has indicated that it is willing to allow States access to additional open market borrowings, subject to certain conditions.

Simply put, if any State volunteers to earmark 30 per cent of small savings loan this year or 40 per cent next year to retire high cost debt, it will be entitled to a matching increase in OMB.

Beginning this fiscal, the Centre has started transferring the entire 100 per cent of the proceeds from small saving loans to States. The latter have been asked to utilise only 80 per cent of the proceeds for meeting their investment needs and deploy the balance for retiring high-cost debt.

The amount of debt that can be swapped in the current fiscal has been projected at Rs 20,000 crore — Rs 10,000 crore would be made available if States earmark 20 per cent of the net small savings collections for retiring high cost debt. Another Rs 10,000 crore would come from access to additional open market borrowings to States.

With additional OMB retained at Rs 10,000 crore and States channelising 30 per cent of the net small savings collections in fiscal 2003-04, around Rs 30,000 crore would be available for debt swaps.

The amount would increase to Rs 40,000 crore in 2004-05, presuming that States earmark 40 per cent of the small saving proceeds to retire high cost debt.

However, some of the States even today reiterated their stand that they would not be in a position to channelise even 20 per cent of the small savings loan transferred to them by the Centre for debt swap. A debt swap scheme was, therefore, set be implemented by all States only in the next fiscal, said officials.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
1942 — A buyback story


L&T closes near open offer price
Ban lifted on five major seafood units
Only a few takers for debt swap
Fiscal reform: Centre, States may not bite the bullet now
Centaur resale puts Ministry in a spot
Gujarat Samachar, JK co bid for NEPA stake
HDFC moots 1:1 jubilee bonus; Q2 net up 21 pc


The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |

Copyright 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line