Rule 277 - Government Guarantees | KartavyaDesk
Original Rule Text
Ministries or Departments should furnish to that Ministry, data of certain operational parameters of the Public Sector Undertaking or Entity, as given in GFR26. In case the accounts of the Central Public Sector Undertaking or Entity have been audited by the Comptroller & Auditor General of India, the effect of the comments of the Comptroller & Auditor General of India on the Central Public Sector Undertaking’s profitability should be brought out. Further, where BIFR targets have been assigned or Cabinet directions issued to the Company, the actuals vis-à-vis targets for the preceding three years should be indicated. The data should be furnished in the Form GFR 26 along with the proposal for guarantee. (vi) Guarantees shall normally be restricted to the repayment of principal and normal interest component of the loan. Other risks shall not form part of the guarantee. (vii) Government guarantees will be extended to only central public sector companies/ agencies. (viii) Government guarantees shall not be provided to the private sector. (ix) Government guarantees should normally not be extended for external commercial borrowings. (x) Government guarantees may be given on all soft loan components of the bilateral/ multilateral aid. However, guarantee shall not be normally given for the commercial loan components of such aid. (xi) Government of India guarantee will not be given in cases of grants. However, if the donor insists on ensuring performance, the same may be listed as a negotiating condition for getting the grant. (xii) Appropriate conditions, may be made by Government while giving the guarantee e.g. period of guarantee, levy of fee to cover risk, representation for Government on the Board of Management, Mortgage or lien on the assets, submission to Government of periodical reports and accounts, right to get the accounts audited on behalf of
What This Means
Rule 277 of the General Financial Rules (GFR), 2017, focuses on the process and conditions for the government providing guarantees to Public Sector Undertakings (PSUs) or other entities. Essentially, when a Ministry or Department is seeking a government guarantee for a PSU, they need to provide detailed financial and operational data. This includes information outlined in Form GFR 26, which covers key performance indicators. If the Comptroller & Auditor General of India (CAG) has audited the PSU's accounts, the Ministry must also explain how the CAG's comments impact the PSU's profitability. If the PSU has specific targets set by the Board for Industrial and Financial Reconstruction (BIFR) or directions from the Cabinet, the Ministry must show how the PSU performed against those targets for the last three years.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Ministries must provide operational data (as per GFR 26) when seeking guarantees for PSUs.
- •If the CAG has audited the PSU, the impact of CAG's comments on profitability must be explained.
- •Performance against BIFR targets or Cabinet directions for the past three years must be indicated.
- •Guarantees are generally limited to the principal and normal interest of the loan.
- •Government guarantees are only extended to central public sector companies/agencies, not the private sector.
Practical Example
The Ministry of Steel is seeking a government guarantee for Bharat Iron Ore Ltd. (BIOL), a central PSU, to secure a loan of ₹500 crore for modernization. As per Rule 277, the Ministry must submit Form GFR 26, detailing BIOL's production capacity, sales figures, and profitability. The CAG had previously audited BIOL and raised concerns about its operational efficiency. The Ministry must explain how these concerns affect BIOL's ability to repay the loan. Furthermore, BIOL had BIFR targets for increasing production by 10% annually. The Ministry must show whether BIOL met those targets in the preceding three years. The guarantee, if approved, will only cover the ₹500 crore principal and the agreed-upon interest, not any other potential risks.
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 Form GFR 26, and where can I find it?▼
What happens if the PSU doesn't meet its BIFR targets?▼
Can a government guarantee cover currency fluctuation risks on a foreign loan?▼
Can a state government company get a guarantee under this rule?▼
What if a donor agency insists on a guarantee for a grant?▼
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 277 of GFR 2017, when a Ministry seeks a government guarantee for a Central Public Sector Undertaking (CPSU), what information, related to audit, must be furnished if the CPSU's accounts have been audited by the Comptroller & Auditor General of India?
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