State seeks to retire high-cost debt

A well placed secretariat official said: "Already around Rs 4,000 crore of high cost government debt, bearing an average rate of interest of 12.85 per cent and a peak interest rate of 15 per cent, has been retired and replaced with debt bearing a 6 per cent coupon. This will mean an annual savings of Rs 370 crore on account of the 6.85 per cent to 9 per cent reduction in interest rates." Up to March 31, 2002, the Maharashtra government owed Rs 37,064 crore to the Central government.

A fresh proposal by the state government, however, seeks to retire the high cost debt owed by the various state-floated SPVs, which bear a peak interest rate of 18 per cent, before retiring the GoI debt.

"This will result in an additional annual savings of Rs 80 crore. While the total GoI debt stands around the Rs 40,000 crore mark, SPV debts are pegged at Rs 14,000 crore.

SPVs raise finances for various state government development projects through bond issues.

The GoI debt recovery mechanism, in case of defaults by states on principal and interest payments, allows for an auto debit system from the defaulting state's consolidated fund.

Similarly, for SPV debt recovery, a special dispensation is worked out (in the form of an escrow mechanism) where a special account is held with the RBI for ensuring the principal and interest payments on these loans are unfailingly made.

The official emphasised that while some states had defaulted on their SPV debts Maharashtra's position was distinct from other erring state governments.

"There has not been a default in the SPV debts of Maharashtra. None of the government-issued guarantees for these loans have ever been invoked, which is unique to the state," the official said.

Out of a total state-guaranteed amount of Rs 49,739 crore, guarantees worth Rs 19,298 crore have been issued by Maharashtra for SPV loans.