Rule 103 — GFR 2017
Original Rule Text
Rule 103
Conversion of outstanding loans into
equity investments or grants-in-aid.
Government takes from time to time,
suitable
measures
to
strengthen/
restructure the Capital base of public
sector
enterprises
so
that
these
enterprises
can
improve
their
performance and productivity. As a part
of the package scheme, financial relief in
the form of conversion of outstanding
loans into equity investments or grants-
in-aid are also agreed to.
Where loans outstanding against Public
Sector Undertakings are proposed to be
converted into equity investments in or as
grants-in-aid
to
the
Public
Sector
Undertakings,
the
approval
of
the
Parliament to such proposals, shall be
obtained by including a token provision in
the relevant Demands for Grants or
Supplementary Demands for Grants as
may be found expedient. The details of
such conversion of loans may be
explained
in
the
relevant
Budget/Supplementary
Demand
What This Means
This rule explains how the government can help its own companies, known as Public Sector Undertakings (PSUs) or Enterprises (PSEs), when they are struggling or need a financial boost to perform better. Sometimes, the government lends money to these PSUs. If a PSU has a lot of outstanding loans, the government might decide to change these loans into something else, like owning a bigger share of the company (equity investment) or simply giving them the money as a grant (grants-in-aid) that doesn't need to be paid back. This is done to improve the PSU's financial health and overall performance.
When the government decides to convert these outstanding loans into equity or grants, it's not a simple administrative decision. It requires the approval of the Parliament. To get this approval, the government must include a small, symbolic amount (a "token provision") in its budget requests, specifically in the "Demands for Grants" or "Supplementary Demands for Grants" documents. These documents are presented to Parliament for approval of government spending.
Along with the token provision, the government must clearly explain all the details of this loan conversion in the budget documents. Once Parliament gives its approval, the government's financial records need to be updated. This means the original loan amounts and the capital expenditure figures in the Union Government's accounts will be adjusted on paper to reflect that the loans are no longer outstanding but have been converted into equity or grants. This ensures the government's books accurately show the new financial arrangement with the PSU.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1The government can convert outstanding loans given to Public Sector Undertakings (PSUs) into equity investments or grants-in-aid.
- 2This measure aims to strengthen the financial base and improve the performance and productivity of PSUs.
- 3Parliamentary approval is mandatory for such loan conversions.
- 4Approval is sought by including a token provision in the relevant Demands for Grants or Supplementary Demands for Grants.
- 5Detailed explanations of the conversion must be provided in the Budget or Supplementary Demand documents.
- 6After Parliament's approval, government accounts must be formally adjusted to reflect the conversion.
Practical Example
Imagine "Bharat Heavy Industries Ltd." (BHIL), a fictional Public Sector Undertaking, has taken several loans from the Government of India over the years for expansion and modernization. Due to a recent economic downturn and some project delays, BHIL is struggling to repay these loans, impacting its ability to invest in new technologies and remain competitive. The Ministry of Heavy Industries, after reviewing BHIL's situation, proposes a financial restructuring package.
As part of this package, the Ministry decides to convert ₹500 crore of BHIL's outstanding loans into equity investment in BHIL and another ₹200 crore into a grant-in-aid for specific research and development projects. To proceed, the Ministry prepares a proposal for the Department of Economic Affairs and the Ministry of Finance. During the next budget cycle, the Ministry of Finance includes a token provision of ₹1,000 (a symbolic amount) under the "Demands for Grants" for the Ministry of Heavy Industries. Crucially, the detailed budget documents accompanying these demands clearly explain that this token provision is for the conversion of ₹700 crore of loans to BHIL into equity and grants, outlining the rationale and expected benefits. Once Parliament debates and approves these demands, the Controller General of Accounts will be notified to make the necessary proforma adjustments in the Union Government's books, reducing the loan outstanding from BHIL and increasing the government's equity holding or grant expenditure accordingly.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
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This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.