No interest waiver on state loans

Finance ministry in favour of swapping Costly loans with cheap ones

The finance ministry is believed to have thumbed down the proposals of waiving interest payments on loans taken by states from the Centre.

However, the ministry is in favour of restructuring debts by swapping high cost loans with low cost ones, sources said here today.

In a recent communique to the Planning Commission, the finance ministry disfavoured the proposal of waiving interest payments on loans taken by various states from the Centre, sources said.

The finance commission had earlier listed out various options including waiver of interest and debt restructuring to assist debt-ridden states to come out of its financial crisis.

Finance ministry sources said the Centre has already agreed to swap debts worth Rs 40,000 crore this fiscal.

"Rs 40,000 crore has been earmarked for debt swap schemes this fiscal "" Rs 16,000 crore for market borrowing and Rs 24,000 crore for small savings," an official said.

Last fiscal, the entire amount of the debt swap scheme was transferred to the national savings scheme.

"But this fiscal, we will transfer Rs 29,000 crore to the National Saving Scheme and the remaining Rs 11,000 crore would be utilised for normal expenditure," he said.

States would be encouraged to borrow more from the open market and get loans from the Centre at a reduced interest rate of 9 per cent from this fiscal onwards, the official added. States have pitched for a lower interest rate of 8 per cent on loans taken from the Centre.

However, considering the hardening of interest rates across the board in recent months, it is unlikely that the Centre would agree to reduce the interest rate below 9 per cent, as proposed earlier.

Outstanding liabilities of the states is estimated at Rs 9,10,902 crore in the current fiscal at 29.2 per cent to Gross Domestic Product (GDP) as against Rs 8,05,667 crore (29.1 per cent) in 2003-04.

Interestingly, the estimates show a decline in loans taken by states from the Centre during this fiscal at Rs 2,05,180 crore against last fiscal's Rs 2,12,521 crore.

However, states loans from the market were higher at Rs 2,02,055 crore this fiscal as against last fiscal's Rs 1,76,250 crore while negotiated loans from other sources stood at Rs 1,14,380 crore compared to Rs 92,288 crore last fiscal.

Proposal thumbed down

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• Finance ministry sources said the Centre has already agreed to swap debts worth Rs 40,000 crore in this fiscal
• Last fiscal, the entire amount of the debt swap scheme was transferred to the national savings scheme
• States would be encouraged to borrow more from the open market and get loans from the Centre at a reduced interest rate of 9 per cent from this fiscal onwards
• States have pitched for a lower interest rate of 8 per cent on loans taken from the Centre