The Telegraph
Since 1st March, 1999
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Debt swap scheme set for debut

New Delhi, Jan. 28: The Centre will launch a debt swap scheme shortly for states mired in high-cost borrowings with their overall debt burden running into Rs 5,80,000 crore.

The government had decided to exchange high cost debts of states with low cost securities worth Rs 1,10,000 crore during the next four years.

The government said all states except West Bengal and Maharashtra had agreed to trade in their high-cost interest-bearing bonds for softer loans.

“It could come very soon as early as this week as the 26 states have accepted the Centre’s debt swap proposal,” said finance secretary S. Narayan.

Maharashtra and West Bengal — the two that account for around 40 per cent of total loans taken by states — have not agreed so far as they want the Centre to improve the terms of the debt swap arrangement in view of the magnitude of their debts.

The Centre proposed the debt swap arrangement at the chief ministers’ conference last year to find ways to abate the difficult fiscal situation.

The Centre agreed to swap debts worth Rs 25,000 crore — Rs 15,000 crore on account of small savings and the remaining due to market borrowings by states. Through this mechanism, the Centre intended to provide a relief of at least Rs 1,000 crore to states.

Although, the states welcomed the move, some of them had asked the Centre to swap more debts as their interest outflow was still higher at Rs 69,000 crore.

Meanwhile, the finance secretary denied any move to raise offshore loans to repay the Resurgent India Bonds debts worth around $ 4.25 billion.

The Resurgent India Bonds, targeted at the cash-rich non-resident Indians, was launched in 1998 by the State Bank of India to raise foreign currency reserves.

The bonds, scheduled for redemption between 2003-2005 in three tranches has the first redemption scheduled in September 2003.

Narayan also said the decision to prepay around Rs 14,015 crore worth offshore debt owed to the financial institutions, both Asian Development Bank and the World Bank, would not upset the country’s fiscal balance.

“There is no such borrowing planned and the loan repayment has been scheduled between February 15-18, 2003...the loan repayment would be totally fiscal deficit neutral as the borrowing will be matched by deletion of equal amount from capital account,” Narayan said.

“We are doing it because the interest rates are the lowest. The loans are to be repaid through domestic market borrowing which will help the government to suck in some of the excess money liquidity,” the finance secretary clarified.

“The increased inflow of foreign exchange is due to rupee appreciation and particularly the Euro,” Narayan said, adding that the rise in exports and the settlement of export payments upfront has all contributed to the increase in forex reserves.

“These are healthy accruals which are making the foreign exchange position comfortable,” Narayan added.

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