Bailout Package for DEBT Stressed States
Vide office memorandum no. 4(5)/ FRU/2004 dated 4th August, 2004, States were advised to obtain concurrence of the Department of Expenditure before availing loan from external agencies. A debt stressed State was defined as one whose ratio of consolidated debt and liabilities to total revenue receipts exceeded 300% (200% in case of special category states). Subsequently, vide office memorandum no. 4(5)/ FRU/2004 dated 24the October, 2005, States were asked to obtain concurrence of the Department of Expenditure before availing external assistance for structural adjustment loans as also for projects. A debt stressed State was defined as one with interest payments to total revenue receipts ratio higher than 20 percent. A tentative indicative list of debt-stressed States, based on the States’ 2004-05 (RE), was annexed to this office memorandum, in which Kerala, Punjab and West Bengal were there of the eleven States included.
In accordance with the recommendations of the Twelfth Finance Commission (TFC), whose award period was 2005-10, the following public debt and interest relief measures have been extended to the States, upon their enactment of the prescribed Fiscal Responsibility and Budget Management Acts (FRBMA):
(i) Central loans from Ministry of Finance contracted till 31.3.2004 and outstanding as on 31.3.2005, amounting to Rs. 113601.14 crore, were consolidated for a fresh tenure of twenty years from 1.4.2005 at an interest rate of 7.5% per annum, for 26 States that had enacted their FRBMAs.
(ii) Debts owed to the Ministry of Finance, amounting to Rs. 19725.81 crore have been waived for States based on their fiscal performance during TFC’s award period.