The Hindu Business Line : State Govts swap debt worth Rs 60,000 cr

THE total amount of debt swapped by the State Governments to prepay high-cost debt to the Centre amounted to Rs 60,368 crore, of which around 61 per cent has been financed through additional market borrowings at interest rates below 6.5 per cent, according to the Reserve Bank of India (RBI).

The market borrowings have enabled States to access funds at less than half of the earlier costs, the RBI said in its report, `State Finances: A study of Budgets 2003-04'.

The Union Budget for 2003-04 announced a debt swap scheme that would enable States to prepay high-cost debt to the Centre through additional market borrowings and proceeds from small savings.

Under the scheme, mutually agreed between the Centre and the State Governments, States are allowed to retire loans amounting to Rs 1,00,000 crore from the Centre bearing coupons in excess of 13 per cent.

These loans would be swapped with additional market borrowings of the States and their net small savings proceeds (up to specified limits) at the prevailing interest rates over a period of three years ending in 2004-05.

Accordingly, in 2002-03, the States prepaid Central loans of Rs 13,766 crore under the scheme, of which Rs 10,000 crore came from market borrowings allocated under the debt swap scheme in addition to the normal borrowing allocations and small savings proceeds, the apex bank said.

As per the interim Budget 2004-05 of the Union Government, the total debt swap was placed at Rs 46,602 crore in the revised estimates for 2003-04.

As per RBI records, additional market borrowings under the debt swap scheme amounted to Rs 26,623 crore during 2003-04.

The remaining loans have been financed through issue of special securities to the National Small Savings Fund (NSSF) at interest rates fixed at 9.5 per cent.