Rule 26 - Government Guarantees
Original Rule Text
26. Government guarantees.– (1) A Government guarantee is an arrangement in which a Government entity undertakes payment of a debt or performance of an obligation in the event of a default by the primary creditor.
(2) The power of the Government to give guarantee emanates from and is subject to such limits as may be fixed in terms of article 292 of the Constitution, the Fiscal Responsibility and Budget Management Act, 2003 (39 of 2003) and the rules framed thereunder.
(3) The Ministries or departments shall levy guarantee fee on the amount outstanding at the beginning of guarantee year as per the rate notified by the Budget Division and take necessary steps to ensure prompt recovery of the prescribed fee.
What This Means
Rule 26(2) of the Receipt and Payment Rules is all about government guarantees. Think of a guarantee as the government promising to pay a debt if someone else can't. This rule clarifies that the government's ability to provide these guarantees isn't unlimited. It's governed by the Constitution (specifically Article 292), the Fiscal Responsibility and Budget Management (FRBM) Act of 2003, and any rules created under that Act. These laws set limits on how much the government can guarantee to ensure responsible financial management.
In essence, this rule ensures that government guarantees are issued responsibly and within legally defined boundaries. It applies whenever a government department or agency is considering providing a guarantee for a loan, project, or other financial obligation. It affects all government employees involved in financial decisions, especially those dealing with loans, investments, and public finance management. The rule aims to prevent excessive borrowing and maintain fiscal discipline.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Government's power to give guarantees is limited.
- 2Limits are defined by Article 292 of the Constitution.
- 3The FRBM Act, 2003, also imposes limits on guarantees.
- 4Rules framed under the FRBM Act further specify these limits.
- 5The rule promotes fiscal responsibility in government guarantees.
Practical Example
The Ministry of Infrastructure Development is considering guaranteeing a loan of ₹500 crore taken by the National Highway Construction Corporation (NHCC) for a new highway project. Before approving the guarantee, the Finance Department must verify that the total amount of outstanding government guarantees, including this proposed guarantee, remains within the limits prescribed by Article 292 of the Constitution and the FRBM Act, 2003. If the total exceeds the permissible limit, the guarantee cannot be issued, or the project needs to be restructured to reduce the guaranteed amount. This ensures the government doesn't overextend its financial commitments.
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 government guarantee?▼
Where can I find the specific limits on government guarantees?▼
What happens if a proposed guarantee exceeds the permissible limit?▼
Does this rule apply to all types of government guarantees?▼
Who is responsible for ensuring compliance with this rule?▼
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 26(2) of the Receipt and Payment Rules, the government's power to provide guarantees is primarily derived from which of the following?