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Rule 276 - Sovereign Guarantees | KartavyaDesk

GFR 2017

Original Rule Text

(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 fulfill the requirement in cases where sovereign guarantee is a precondition for concessional loans from bilateral/ multilateral agencies to central public sector companies/agencies.

What This Means

Rule 276 of the General Financial Rules (GFR), 2017, deals with the issuance of sovereign guarantees by the Government of India. Think of a sovereign guarantee as the government promising to pay back a loan if a central government entity, like a public sector company, can't. This rule outlines the circumstances under which the government can provide this guarantee. It's not something given out lightly; it's reserved for situations where it significantly benefits the country.

The main reasons for providing a sovereign guarantee under Rule 276 are threefold: to make projects with significant social or economic value more financially viable, to help central public sector enterprises (CPSEs) secure loans at better interest rates or terms, and to meet the requirements of international lenders (like the World Bank) who often require a sovereign guarantee before offering concessional loans to CPSEs or agencies. This rule primarily affects CPSEs, central government ministries, and the Department of Economic Affairs, which is responsible for approving these guarantees.

Essentially, Rule 276 is about using the government's financial backing strategically to support important projects and help CPSEs access funding, especially from international sources, when those projects align with national interests and offer substantial benefits to the economy and society.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

  • •Rule 276 pertains to the issuance of sovereign guarantees by the Government of India.
  • •Sovereign guarantees are provided to improve the viability of projects with significant social and economic benefits.
  • •They enable CPSEs to raise resources at lower interest rates or on more favorable terms.
  • •Sovereign guarantees may be required for concessional loans from bilateral/multilateral agencies.
  • •The Department of Economic Affairs plays a key role in approving sovereign guarantees.

Practical Example

The National Clean Energy Corporation (NCEC), a CPSE, wants to build a large-scale solar power plant in Rajasthan. The project is estimated to cost ₹5000 crore. NCEC approaches the World Bank for a concessional loan, but the World Bank requires a sovereign guarantee from the Government of India.

After careful evaluation, the Ministry of Power and the Department of Economic Affairs determine that the solar power plant aligns with national energy goals and will have significant social and economic benefits (providing clean energy, creating jobs, etc.). Therefore, the government, under Rule 276, issues a sovereign guarantee to the World Bank on behalf of NCEC. This allows NCEC to secure the concessional loan and proceed with the solar power project, contributing to India's renewable energy targets.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What is a sovereign guarantee in simple terms?▼
It's like the government co-signing a loan for a CPSE. If the CPSE can't repay, the government promises to step in and pay the lender.
Who decides whether a sovereign guarantee should be issued?▼
The Department of Economic Affairs (DEA) in the Ministry of Finance is primarily responsible, in consultation with the relevant administrative ministry.
What are the risks associated with issuing a sovereign guarantee?▼
If the CPSE defaults on the loan, the government has to pay, which can strain the national budget. Therefore, careful evaluation of the project's viability is crucial.
Does Rule 276 apply to state government entities?▼
No, Rule 276 specifically applies to central government entities, particularly CPSEs.
What kind of projects typically qualify for a sovereign guarantee under Rule 276?▼
Projects with significant social and economic benefits, such as infrastructure development, renewable energy projects, and initiatives that promote economic growth and job creation, are more likely to qualify.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Test Your Knowledge

Question 1 of 3

According to Rule 276 of the General Financial Rules, 2017, under what primary circumstance can the Government of India issue a sovereign guarantee?

Related Rules

Rule 271General Financial Rules 2017 (amended July 2024) - Rule 271 - Chapter 10Rule 109General Financial Rules 2017 (amended July 2024) - Rule 109Rule 146General Financial Rules 2017 (amended July 2024) - Rule 146 - Chapter 6Rule 169General Financial Rules 2017 (amended July 2024) - Rule 169 - Chapter 6Rule 215General Financial Rules 2017 (amended July 2024) - Rule 215 - Chapter 6

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