RBI’s working group has proposed framework for State guarantees

Current Context: On 16th january 2024, The Reserve Bank of India’s (RBI) working group on State Government Guarantees has proposed a framework.

• Here are the major recommendations:
• The term ‘Guarantee’ should include all instruments that create an obligation, contingent or otherwise, on the part of the State Government.
• The purpose for which Government guarantees are issued should be clearly defined.
• State Governments may consider fixing a ceiling for incremental guarantees issued during a year at 5 per cent of Revenue Receipts or 0.5 per cent of Gross State Domestic Product, whichever is less.
• State Governments may consider charging a minimum guarantee fee for guarantees extended and additional risk premium may be charged based on the risk category and the tenor of the underlying loan.
• State Governments may publish/disclose data relating to guarantees, as per the Indian Government Accounting Standard (IGAS).
• The implementation of these recommendations is expected to facilitate better fiscal management by the State Governments.
• The terms of reference of the Working Group included prescribing a uniform guarantee ceiling for the states, a uniform reporting framework for the guarantees given by the State Governments, and assessing the adequacy of states’ contribution to the Guarantee Redemption Fund.

Question:

Q.1 What does the term ‘Guarantee’ include as per the RBI’s working group on State Government Guarantees?
a. All instruments that create an obligation, contingent or otherwise, on the part of the State Government.
b. Only instruments that create a contingent obligation on the part of the State Government.
c. Only instruments that create an obligation on the part of the State Government.
d None of the above.