Rule 275 of The General Financial Rules 2017 Government Guarantees
Original Rule Text
Visual Summary
Power to give guarantees from Article 292.
Subject to limits by FRBM Act and Rules.
Budget Division, DEA grants guarantees.
Executive Summary
Rule 275 of The General Financial Rules, 2017, delineates the Union Government’s authority to issue guarantees. This power is rooted in Article 292 of the Constitution of India and is strictly governed by the limits set forth in the Fiscal Responsibility and Budget Management Act and its associated rules. Crucially, the power to grant these Government of India Guarantees, including those for external borrowings, is exclusively vested in the Budget Division of the Department of Economic Affairs (DEA).
In-Depth Analysis of the Rule
Introduction: Rule 275 is a foundational provision within The General Financial Rules, 2017, establishing the framework for the Union Government’s issuance of financial guarantees. These guarantees are critical instruments in public finance, often used to support public sector undertakings or specific projects, and thus require clear legal and administrative boundaries.
Breakdown of the Rule:
- Rule 275 (1) – Power and Limits: This sub-rule establishes that the Union Government’s authority to provide guarantees originates from Article 292 of the Constitution of India. It also explicitly states that this power is not absolute but is subject to limits defined by the Fiscal Responsibility and Budget Management (FRBM) Act and its subsequent rules. This ensures that government guarantees are issued within a prudent fiscal framework.
- Rule 275 (2) – Aggregate Limits: Building on the first sub-rule, this section clarifies that the Central Government cannot issue guarantees that, in aggregate, exceed the amount prescribed by the FRBM Act and its rules. This provision is a key control mechanism to prevent excessive contingent liabilities that could impact the nation’s fiscal health.
- Rule 275 (3) – Granting Authority: This sub-rule centralizes the authority for granting Government of India Guarantees. It specifies that this power, including for external borrowings, rests solely with the Budget Division of the Department of Economic Affairs (DEA). This ensures a single, specialized point of control and expertise for such significant financial commitments.
Practical Example: Imagine a large public sector enterprise (PSE) needs to borrow a substantial amount from an international bank for a critical infrastructure project. The international bank, to mitigate its risk, requires a sovereign guarantee from the Government of India. Under Rule 275, the PSE’s proposal for a guarantee would be submitted to the Budget Division, Department of Economic Affairs. The Budget Division would then assess the proposal, ensuring it aligns with the limits set by the Fiscal Responsibility and Budget Management Act and Article 292 of the Constitution, before deciding whether to grant the guarantee. This process ensures that even vital projects are supported within a disciplined financial framework.
Related Provisions
Understanding Rule 275 is enhanced by examining related provisions:
- Rule 276 of The General Financial Rules 2017 Objectives of Government Guarantees: This rule outlines the specific objectives for which sovereign guarantees are normally extended, providing context to the power described in Rule 275.
- Rule 277 of The General Financial Rules 2017 Guidelines for Grant of Government of India Guarantee: This provision details the guidelines and considerations that Ministries and Departments must follow when recommending a government guarantee, further elaborating on the practical application of Rule 275.
Learning Aids
Mnemonics
- Rule 275: GFA – Government, FRBM, Authority. Think of “Government Financial Authority” to remember the key elements: Government’s power, FRBM Act limits, and Authority (Budget Division, DEA).
Process Flowchart
Multiple Choice Questions
1. From which Article of the Constitution of India does the Union Government’s power to give guarantees emanate, as per Rule 275 of The General Financial Rules, 2017?
- A) Article 266
- B) Article 283
- C) Article 292
- D) Article 112
Show Answer
Correct Answer: C) Article 292
2. What Act, along with its rules, limits the Union Government’s power to give guarantees, according to Rule 275 of The General Financial Rules, 2017?
- A) Companies Act, 2013
- B) Fiscal Responsibility and Budget Management Act
- C) Reserve Bank of India Act, 1934
- D) Government of Union Territory Act, 1963
Show Answer
Correct Answer: B) Fiscal Responsibility and Budget Management Act
3. Which specific division within the Department of Economic Affairs is vested with the power to grant Government of India Guarantees, as per Rule 275 of The General Financial Rules, 2017?
- A) Revenue Division
- B) Expenditure Division
- C) Budget Division
- D) Investment Division
Show Answer
Correct Answer: C) Budget Division
4. According to Rule 275 (2) of The General Financial Rules, 2017, what is the Central Government prohibited from doing regarding guarantees?
- A) Granting guarantees for external borrowings.
- B) Giving guarantees aggregating an amount exceeding that prescribed by the FRBM Act.
- C) Issuing guarantees without the approval of the Ministry of Finance.
- D) Providing guarantees to State Governments.
Show Answer
Correct Answer: B) Giving guarantees aggregating an amount exceeding that prescribed by the FRBM Act.
5. Rule 275 of The General Financial Rules, 2017, states that the power to grant Government of India Guarantees includes those on:
- A) Internal trade agreements only.
- B) Domestic loans for private entities.
- C) External borrowings.
- D) State government deficits.
Show Answer
Correct Answer: C) External borrowings.
Frequently Asked Questions
What is the primary legal basis for the Union Government’s power to give guarantees?
As per Rule 275 (1) of The General Financial Rules, 2017, the power emanates from Article 292 of the Constitution of India.
Who is the competent authority for granting Government of India Guarantees?
Rule 275 (3) of The General Financial Rules, 2017, specifies that this power vests with the Budget Division, Department of Economic Affairs (DEA).
Are there any financial limits on the Government’s power to give guarantees?
Yes, Rule 275 (1) and (2) of The General Financial Rules, 2017, state that this power is subject to limits fixed in terms of the Fiscal Responsibility and Budget Management Act and its framed rules, which prescribe an aggregate amount not to be exceeded.
Key Takeaways
- The Union Government’s power to issue guarantees is constitutionally derived from Article 292.
- This power is strictly limited by the provisions of the Fiscal Responsibility and Budget Management Act and its associated rules.
- The Budget Division of the Department of Economic Affairs (DEA) is the sole authority for granting Government of India Guarantees.
- These guarantees are a critical aspect of public finance, requiring careful adherence to legal and fiscal frameworks.
Conclusion
Rule 275 of The General Financial Rules, 2017, serves as a cornerstone for responsible financial governance by clearly defining the Union Government’s authority and limitations concerning the issuance of guarantees. By anchoring this power in constitutional provisions and subjecting it to stringent fiscal management acts, the rule ensures that such significant financial commitments are made with due diligence, transparency, and accountability, thereby safeguarding public funds and maintaining fiscal stability.