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C. Shivkumar

BANGALORE, Jan 1

FACED with declining revenue receipts, the Karnataka Government is likely to scale down the guarantee limits for the next fiscal.

Sources said that guarantee limits are fixed at 80 per cent of the previous year's revenue receipts. But revenue receipts during the current year are faced with a severe shortfall as high as 25 per cent, the forecast for the current fiscal being Rs 17,328 crore.

Based on these revenue estimates, the guarantee limit for the next fiscal should be equivalent to Rs 13,900 crore.

However, the actual guarantee availability is unlikely to exceed Rs 10,500, given the poor state of revenue accretion, the sources said.

But these limits could face a further deterioration if the Central transfers are also scaled, especially since there have been shortfalls in both direct as well as indirect taxes.

Of these obligations, at least Rs 8,984 crore of guarantees are already outstanding debt servicing payments for borrowings made from the financial institutions such as Hudco, LIC, Power Finance Corporation and Rural Electrification Corporation.

Consequently, the State Government's ability to provide incremental guarantees is unlikely to be more than Rs 1,400 crore, the sources added.

These incremental limits could face further contraction in view of exchange rate depreciation.

For instance, in the case of the Tanir Bhavi project, where there is a foreign currency borrowing equivalent to $120 million, exchange rate depreciation would lead to an escalation in the outstanding guarantees.

This in turn would lead to a further shrinkage in the incremental limits, the sources said.

The only institutions that are likely to continue to remain out of the guarantee ceiling are organisations like Krishna Bhagya Jala Nigam Ltd (KBJNL) and Karnataka Neeravari Nigam Ltd.

This scaling down implies that potential borrowers, like the power utilities, have been asked to look for alternative arrangements to raise resources. The alternatives under examination include assignment of certain revenues.

Utilities such as the State power transmission company have already resorted to mechanisms like discounting of receivables.

These organisations have opened accounts with banks such as ICICI Bank where the power bills are credited.

On the strength of these revenue flows, ICICI has extended a line of credit equivalent to Rs 500 crore without any guarantee support from the State Government.

In all these cases, the guarantees are treated as unfunded liabilities of the State Government.

Unfunded liabilities mean that no sinking fund has been created outside the consolidated fund to meet the debt servicing requirements.

Such a fund also cannot be created, in view of the fact that the first charge on revenues would be for borrowings made on the strength of sovereign guarantees, mostly State development loans.

The sources said that the scaling down of guarantees would have a severe impact on the ability of the Government to provide support for some power projects.

These include borrowings planned for Karnataka Power Corporation's Almatti Power Project and Bellary Thermal Power Station.

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