Rule 283 of The General Financial Rules 2017 Invocation of Guarantee
Original Rule Text
Visual Summary
Established in Public Account for invoked guarantees.
Ministries must inform Budget Division in advance.
Done by sanctioning loan, charged to GRF.
Executive Summary
Rule 283 of the General Financial Rules, 2017, outlines the procedure for the invocation of government guarantees. It establishes the Guarantee Redemption Fund (GRF) in the Public Account of India to cover such invoked guarantees, funded through budgetary appropriations. Administrative Ministries and Departments are mandated to provide advance notice to the Budget Division regarding any impending guarantee invocations, along with proposed corrective actions. When a guarantee is invoked, the obligation is typically met by sanctioning a loan to the borrowing entity, with the final payment charged to the GRF.
In-Depth Analysis of the Rule
Rule 283 provides a structured framework for managing the financial implications when a government guarantee is called upon. This rule is critical for maintaining fiscal discipline and ensuring that mechanisms are in place to handle contingent liabilities effectively.
Breakdown of the Rule:
- Rule 283 (1) – Guarantee Redemption Fund (GRF): This sub-rule establishes the GRF within the Public Account of India. Its primary purpose is to facilitate the redemption of guarantees extended by the Central Government to CPSEs (Central Public Sector Enterprises), Financial Institutions, and other entities when these guarantees are invoked. Funding for the GRF is sourced from budgetary appropriations, specifically under the ‘Transfer to Guarantee Redemption Fund’ head within the Demands for Grants of the Department of Economic Affairs.
- Rule 283 (2) – Advance Notification of Invocation: Administrative Ministries and Departments are required to proactively inform the Budget Division about any cases where a guarantee is likely to be invoked. This notification must be provided well in advance and should include details of proposed corrective measures. This ensures preparedness and allows for timely financial planning.
- Rule 283 (3) – Discharge of Obligation: When a guarantee is actually invoked, the government’s obligation is typically met by sanctioning a loan to the borrowing entity. The amount of this loan is equivalent to the outstanding guarantee amount and requires the approval of the Budget Division, Ministry of Finance. Importantly, any payment made on this account is ultimately charged to the Guarantee Redemption Fund, reinforcing the role of the GRF as the designated mechanism for such liabilities.
Practical Example:
Imagine a Central Public Sector Enterprise (CPSE) takes a loan from a bank, backed by a guarantee from the Central Government. If the CPSE faces financial difficulties and defaults on its loan, the bank invokes the government guarantee. According to Rule 283 (2), the administrative Ministry overseeing the CPSE should have already informed the Budget Division about the impending default. Upon invocation, Rule 283 (3) dictates that the government would sanction a loan to the CPSE to cover the outstanding guarantee amount. This payment, though initially a loan, is ultimately charged against the Guarantee Redemption Fund (GRF), as established by Rule 283 (1), ensuring that the financial burden is managed through a dedicated mechanism.
Related Provisions
Understanding Rule 283 is enhanced by reviewing related sections of the General Financial Rules, 2017:
- Rule 275 (1) of The General Financial Rules 2017 Power to Give and Limits on Government Guarantees: This rule sets the foundational powers and limits for the Union Government to issue guarantees, linking to Article 292 of the Constitution and the Fiscal Responsibility and Budget Management Act.
- Rule 277 of The General Financial Rules 2017 Guidelines for Grant of Government of India Guarantee: Provides detailed guidelines that Ministries and Departments must follow when recommending government guarantees, including considerations for public interest, creditworthiness, and risk assessment.
- Rule 282 of The General Financial Rules 2017 Accounting for Guarantees: Details the accounting procedures and disclosure requirements for government guarantees, ensuring transparency in fiscal operations.
Learning Aids
Mnemonics:
- GRF – Guarantee Redemption Fund: Remember it’s the ‘Go-to Reserve Fund’ for invoked guarantees.
- INVOKE – Inform Notify Verify Obligation Keep Executing: A reminder of the steps when a guarantee is invoked.
Process Flowchart:
Multiple Choice Questions
1. What is the primary purpose of the Guarantee Redemption Fund (GRF) as per Rule 283 (1) of the General Financial Rules, 2017?
- A) To fund new government projects.
- B) To provide loans to State Governments.
- C) To redeem guarantees given by the Central Government when invoked.
- D) To manage foreign aid receipts.
Show Answer
Correct Answer: C) To redeem guarantees given by the Central Government when invoked.
2. According to Rule 283 (2) of the General Financial Rules, 2017, what action should Administrative Ministries/Departments take regarding impending guarantee invocations?
- A) Immediately sanction a loan to the borrowing entity.
- B) Inform the Budget Division well in advance with corrective measures.
- C) Wait for the guarantee to be formally invoked before taking action.
- D) Transfer funds directly to the Guarantee Redemption Fund.
Show Answer
Correct Answer: B) Inform the Budget Division well in advance with corrective measures.
3. When a guarantee is invoked, how is the obligation typically discharged as per Rule 283 (3) of the General Financial Rules, 2017?
- A) By direct payment from the Consolidated Fund of India.
- B) By sanctioning a loan to the borrowing entity.
- C) By requesting the CPSE to arrange its own funds.
- D) By transferring funds from the Contingency Fund.
Show Answer
Correct Answer: B) By sanctioning a loan to the borrowing entity.
4. The funding for the Guarantee Redemption Fund (GRF) is done through which mechanism, as stated in Rule 283 (1) of the General Financial Rules, 2017?
- A) Direct contributions from CPSEs.
- B) Budgetary appropriations under ‘Transfer to Guarantee Redemption Fund’.
- C) Loans from international financial institutions.
- D) Sale of government assets.
Show Answer
Correct Answer: B) Budgetary appropriations under ‘Transfer to Guarantee Redemption Fund’.
5. Which entity’s approval is required for sanctioning a loan to the borrowing entity when a guarantee is invoked, according to Rule 283 (3) of the General Financial Rules, 2017?
- A) Comptroller and Auditor General of India.
- B) Reserve Bank of India.
- C) Budget Division, Ministry of Finance.
- D) Administrative Ministry/Department.
Show Answer
Correct Answer: C) Budget Division, Ministry of Finance.
Frequently Asked Questions
What is the Guarantee Redemption Fund (GRF) and its purpose under Rule 283 of the General Financial Rules, 2017?
The GRF is a fund established in the Public Account of India specifically for the redemption of guarantees issued by the Central Government when they are invoked. It ensures a dedicated mechanism for managing these contingent liabilities.
Why is advance notification of guarantee invocation important as per Rule 283 (2) of the General Financial Rules, 2017?
Advance notification allows the Budget Division and relevant Ministries to prepare for the financial implications, plan corrective measures, and ensure that funds are available or can be arranged to meet the obligation when the guarantee is formally invoked.
How is the actual payment for an invoked guarantee handled under Rule 283 (3) of the General Financial Rules, 2017?
The obligation is discharged by sanctioning a loan to the borrowing entity for the outstanding guarantee amount, with the approval of the Budget Division. This payment is then ultimately charged to the Guarantee Redemption Fund.
Key Takeaways
- Rule 283 establishes the Guarantee Redemption Fund (GRF) for managing invoked government guarantees.
- Administrative Ministries must proactively inform the Budget Division about potential guarantee invocations.
- Discharge of invoked guarantees involves sanctioning a loan to the borrowing entity, with the cost ultimately borne by the GRF.
- The rule ensures a structured and transparent process for handling contingent liabilities arising from government guarantees.
Conclusion
Rule 283 of the General Financial Rules, 2017, is a cornerstone for the prudent management of government guarantees. By establishing a dedicated fund and mandating proactive communication and a clear discharge mechanism, it reinforces fiscal responsibility and ensures that the government is prepared to meet its contingent liabilities efficiently and transparently. Adherence to this rule is vital for maintaining financial stability and public trust.