Finance Ministry bars ministries & departments from issuing 'Letters of Comfort'
The ministry had permitted ministries and departments to issue such 'Letters of Comfort' in 2017. Many infrastructure ministries such as the Railways had been using these letters even though the instrument itself does not have legal sanctity.
A letter of comfort issued by a ministry essentially gives an assurance to the party it is issued saying that the underlying obligation would be met.
The finance ministry has said ministries and departments can no longer issue a 'Letter of Comfort' to any entity, a measure that is aimed at bringing further transparency in fiscal matters and budgeting.
The ministry had permitted ministries and departments to issue such 'Letters of Comfort' in 2017.
A letter of comfort issued by a ministry essentially gives an assurance to the party it is issued saying that the underlying obligation would be met.
Many infrastructure ministries such as the Railways had been using these letters even though the instrument itself does not have legal sanctity.
"As a measure of fiscal transparency and accountable debt management it is essential to have one instrument and that instrument is government guarantees," a senior government official privy to the development, told ET.
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The government discloses government guarantees in its fiscal statement, while there is no assessment or accounting of 'Letters of Comfort' issued.
While the document does not have legal sanctity, a department or ministry not honouring a letter of comfort would not reflect well with the government, it is felt.
Also, because there is no central record or accounting of such a letter of comfort, there may be indiscriminate use of the instrument and serious devolution of liability on the government in some cases.
The finance ministry has issued an office memorandum to this effect.
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"...the authority to issue letters of comfort by ministries/ departments/ any entity of GOI stands withdrawn with immediate effect. Henceforth, no letters of comfort will be issued by any entity within the government," the OM stated.
The finance ministry will now carry out a detailed assessment of such letters issued by various ministries and departments to assess the situation.
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Under the provisions of the fiscal responsibility law, the annual budget now provides details of the guarantees given by the government. At the end of FY21, such guarantees added up to about ₹5 lakh crore.
