New SPV liability norms may put states in a spot
The balance sheets of state governments may lose a bit of sheen if they adopt new practices for treating liabilities as recommended by a working group of the Reserve Bank of India (RBI).
By TNN |
MUMBAI: The balance sheets of state governments may lose a bit of sheen if they adopt new practices for treating liabilities as recommended by a working group of the Reserve Bank of India (RBI).
For long, states have taken recourse to borrowings which are off-budget by raising funds through special purpose vehicles (SPVs). Mobilising money through SPVs is facilitated, thanks to guarantees furnished by state governments.
However, such borrowings do not reflect truly in the fiscal position of state governments being categorised as contingent liabilities. In other words, they are contingent on the inability of the state to meet its repayment obligations.
The working group of the RBI has now recommended that such borrowings of SPVs floated by state governments should be included under the explicit liabilities of that state. If this practice is adopted, liabilities of state governments will rise, as such borrowings, which have so far been off-budget, are taken on to the budget. However, there will not be an impact on the fiscal deficit of states.
Implicit liabilities of state governments include guarantees, off-budget borrowings, pension fund and state public sector liabilities. The budget documents of states currently do not have an accurate data on their outstanding liabilities.
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The group, which includes senior officials of the state governments, the RBI and outside experts, has recommended that implicit liabilities be excluded from the definition of state government budgetary liabilities or debt. There are some other recommendations of the group which again may change the way liabilities of state governments are calculated. It has identified pension as a major form of liability. It says that the total estimate of pension liabilities could be made in the form of funds that would be sufficient to finance the current pensions.
The group now wants the fiscal risk involved in guarantees provided by state governments to be identified and quantified. This exercise is aimed at assessing the sustainability of state government finances.
What such a quantification exercise of fiscal risks of guarantees implies is that a part of it will enter into the total liabilities of the state governments.
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