The outstanding guarantees of central and state governments have gone up to 10.7 per cent of the gross domestic product (GDP) in fiscal 2001 from 9.8 per cent the previous year against the Fiscal Responsibility and Budget Management Bill's prescribed 1.5 per cent.
The Reserve Bank of India (RBI) has warned that the huge amount of guarantees can pose a serious threat to government finances. The central bank says in its annual report: "Although these contingent liabilities are not treated as part of the liabilities in the existing accounting practices as their occurrence depends on certain future events, given the high debt level, these, however are an important source of financial risk."
The outstanding loan and credit guarantees extended by the central and state governments went by 21.3 per cent during 2000-01 to Rs 2,08,767 crore. The outstanding guarantees were at Rs 172,060 crore as on March 31, 2000.
Outstanding guarantees as a percentage of GDP also went up to 10.7 per cent compared with 9.8 per cent at the end of the previous fiscal. The guarantees extended by the central government went up to 4.3 per cent as percentage of GDP as on March 31,2001 form 4.2 per cent a year before, while the guarantees provided by the state government jumped to 6.4 per cent from 5.5 per cent.
The importance of lowering down the guarantees is recognised in the Fiscal Responsibility and Budget Management Bill, 2000. It prescribes a cap of 1.5 per cent of GDP for government guarantees.
The RBI said: "Besides the explicit guarantees, the implicit guarantees, that is, letters of comfort/ structured payment obligations, are also the potential source of financial risk. Since a major part of the outstanding loan/credit guarantees of government is extended on behalf of public enterprises, these are in some sense, indicative of a component of the public sector debt."
