Para 10.10 — CAM
Original Rule Text
10.10 GUARANTEES GIVEN BY CENTRAL GOVERNMENT
10.10.1 Guarantees create contingent liabilities and it is necessary to account for the same. Government generally gives guarantee against the loans taken by Central Public Sector Undertakings. Article 292 of the Constitution of India extends the executive power of the Union Government to give guarantees on the security of the CFI, within such limits, as may be fixed by Parliament. Beginning with the financial year 2004-05, the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) and the Rules made there under prescribes a limit of 0.5% of GDP for guarantees to be given in any financial year. If this limit is exceeded owing to unforeseen circumstances, the Finance Minister is required to make a statement in both Houses of Parliament to explain the deviation. The statement should explain whether the deviation is substantial, if it relates to actual or any potential budgetary outcomes, and the remedial measures that the Government proposes to take in the matter.
10.10.2 Chapter 11 of General Financial Rules, 2017 prescribes the powers to give Government Guarantees and the limits thereon. Rule 276 of GFR, 2017 defines the objectives of Government Guarantees and purpose for extending the same. The sovereign guarantee is normally extended for achieving the following objectives:
(i) To improve viability of projects or activities undertaken by central entities with significant social and economic benefits;
(ii) To enable central public sector companies to raise resources at lower interest charges or on more favourable terms;
(iii) To fulfil the requirement in cases where sovereign guarantee is a precondition for concessional loans from bilateral/ multilateral agencies to central public sector companies/ agencies.
Rule 277 of GFR,2017 details the Guidelines for grant of Government of India Guarantee. This includes the necessary safeguards that the FA may keep in view while processing the application. It prescribes that after examination in the concerned Ministry or Department, all proposals for extending guarantees shall be referred to Ministry of Finance (Budget Division) for approval.
10.10.3 Government Guarantee Policy,2022 issued by Ministry of Finance vide OM. No. 12(13)- B(SD)/2020-Part dated 17th May, 2022, stipulates the procedure to be followed while extending guarantees and other salient features of guarantees given by Government of India. In order to
ensure greater transparency in fiscal operations,
What This Means
When the Government guarantees loans taken by Public Sector Undertakings or other entities, these create contingent liabilities that must be carefully tracked. Article 292 of the Constitution and the FRBM Act limit guarantees to 0.5% of GDP per year. The Head of Accounting Organisation must maintain a guarantee register, collect details from administrative divisions, and furnish verified statements for the Finance Accounts by 31st May each year. If a guarantee is invoked, the payment is treated as a loan and charged to the Guarantee Redemption Fund.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Government guarantees create contingent liabilities that must be accounted for under FRBM Act limits (0.5% of GDP per year)
- 2GFR 2017 Chapter 11 prescribes powers, limits, and guidelines for government guarantees
- 3FAs must annually review guarantees and maintain a register in Form GFR 25
- 4Pr.CCA/CCA/CA must send verified guarantee statements for Finance Accounts by 31st May each year
- 5Invoked guarantees are discharged through loans charged to the Guarantee Redemption Fund
Practical Example
A Central Public Sector Undertaking borrows from a bank with a Government guarantee. The Ministry's Pr. Accounts Office enters the guarantee details in the register, tracks the guarantee fee, and reports the outstanding amount in the IGAS-1 statement. When annual Finance Accounts are due, the PAO confirms the figures with the administrative division and sends the verified statement to the CGA by 31st May.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What happens when a government guarantee is invoked?▼
What is the Guarantee Redemption Fund?▼
Who is responsible for maintaining the guarantee register?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.