Rule 276 of The General Financial Rules 2017 Objectives of Government Guarantees
Original Rule Text
Visual Summary
Improve viability of projects with social and economic benefits.
Enable PSUs to raise resources at lower interest or favorable terms.
Fulfill precondition for concessional loans from bilateral/multilateral agencies.
Executive Summary
Rule 276 of The General Financial Rules, 2017, outlines the core objectives for extending sovereign guarantees. These guarantees primarily aim to enhance the viability of projects undertaken by central entities that offer significant social and economic benefits. Additionally, they enable central public sector companies to secure financial resources at more favorable interest rates or terms. Finally, sovereign guarantees are crucial for fulfilling preconditions set by bilateral or multilateral agencies for concessional loans to central public sector companies and agencies, thereby facilitating access to vital funding.
In-Depth Analysis of the Rule
Government guarantees are a powerful financial instrument used by the Central Government to support strategic initiatives and entities. Rule 276 meticulously defines the specific objectives that must be met for a sovereign guarantee to be extended, ensuring that such commitments serve a clear public purpose.
Breakdown of the Rule:
- (i) Improve Viability of Projects: This objective focuses on projects or activities undertaken by central entities. The key criterion here is that these projects must yield significant social and economic benefits. The guarantee acts as a credit enhancement, making these projects more attractive to lenders and investors, thereby improving their financial feasibility and likelihood of success.
- (ii) Enable Resource Mobilization for PSUs: Sovereign guarantees are extended to central public sector companies to help them raise financial resources. The benefit derived is the ability to secure funds at lower interest charges or on more favorable terms than they might otherwise obtain without government backing. This reduces the cost of capital for PSUs, allowing them to undertake projects more efficiently.
- (iii) Fulfill Precondition for Concessional Loans: In many instances, bilateral or multilateral funding agencies offer concessional loans (loans with favorable terms, often below market rates) for development projects. A sovereign guarantee is frequently a mandatory precondition for such loans to central public sector companies or agencies. Rule 276 acknowledges this, allowing guarantees to unlock these beneficial funding opportunities.
Practical Example:
Consider a large-scale renewable energy project, such as a solar park, being developed by a Central Public Sector Undertaking (CPSU). This project has significant social benefits (clean energy, reduced pollution) and economic benefits (job creation, energy security). A multilateral development bank offers a concessional loan for this project, but it requires a sovereign guarantee from the Government of India as a precondition. Under Rule 276, the government can extend this guarantee. This action improves the project’s viability, enables the CPSU to access funds at a lower interest rate, and fulfills the necessary condition for the concessional loan, ultimately benefiting the public through sustainable energy development.
Related Provisions
Understanding Rule 276 is enhanced by examining related provisions within the General Financial Rules, 2017:
- Rule 275 of The General Financial Rules 2017 Power to Give and Limits on Government Guarantees: This rule sets out the authority and limitations for the Union Government to issue guarantees, providing the overarching framework within which Rule 276’s objectives operate.
- Rule 277 of The General Financial Rules 2017 Guidelines for Grant of Government of India Guarantee: This rule provides detailed guidelines that Ministries and Departments must follow when recommending a guarantee, building upon the objectives laid out in Rule 276.
Learning Aids
Mnemonics:
- VIP: Viability (projects), Interest (lower for PSUs), Precondition (for concessional loans).
Process Flowchart:
Multiple Choice Questions
1. What is one primary objective of Government Guarantees under Rule 276 of the General Financial Rules, 2017?
- A) To fund private sector startups directly.
- B) To improve the viability of projects with significant social and economic benefits.
- C) To provide direct cash transfers to individual beneficiaries.
- D) To cover all operational losses of central entities.
Show Answer
Correct Answer: B) To improve the viability of projects with significant social and economic benefits.
2. According to Rule 276 of the General Financial Rules, 2017, for what purpose might sovereign guarantees enable central public sector companies?
- A) To acquire private companies without tender.
- B) To raise resources at lower interest charges or on more favourable terms.
- C) To invest in high-risk speculative ventures.
- D) To bypass all financial regulations.
Show Answer
Correct Answer: B) To raise resources at lower interest charges or on more favourable terms.
3. Under Rule 276 of the General Financial Rules, 2017, a sovereign guarantee can fulfill a precondition for which type of loans?
- A) Commercial loans from private banks to private entities.
- B) Concessional loans from bilateral/multilateral agencies.
- C) Inter-state loans for revenue deficits.
- D) Short-term personal loans for government employees.
Show Answer
Correct Answer: B) Concessional loans from bilateral/multilateral agencies.
4. Which of the following is NOT an objective of Government Guarantees as per Rule 276 of the General Financial Rules, 2017?
- A) To improve viability of projects with social and economic benefits.
- B) To enable central public sector companies to raise resources at lower interest charges.
- C) To provide direct funding for private sector commercial projects.
- D) To fulfill preconditions for concessional loans from bilateral/multilateral agencies.
Show Answer
Correct Answer: C) To provide direct funding for private sector commercial projects.
5. Rule 276 of the General Financial Rules, 2017, states that sovereign guarantees are normally extended to achieve objectives related to:
- A) Only private sector investments.
- B) Central entities, central public sector companies, and concessional loans.
- C) State government revenue collection.
- D) International trade agreements exclusively.
Show Answer
Correct Answer: B) Central entities, central public sector companies, and concessional loans.
Frequently Asked Questions
Q: What is the main purpose of Government Guarantees under Rule 276 of the General Financial Rules, 2017?
A: The main purpose is to support projects with significant social and economic benefits, help central public sector companies secure resources on better terms, and meet preconditions for concessional loans from international agencies.
Q: Does Rule 276 of the General Financial Rules, 2017, allow guarantees for private sector companies?
A: Rule 276 focuses on objectives related to “central entities” and “central public sector companies/agencies,” implying the primary beneficiaries are government-related bodies. Rule 277(viii) further clarifies that Government guarantees shall not be provided to the private sector.
Key Takeaways
- Sovereign guarantees enhance the viability of projects that offer significant social and economic benefits.
- They enable central Public Sector Undertakings (PSUs) to obtain financial resources at more favorable rates and terms.
- Government guarantees are crucial for fulfilling preconditions for concessional loans from bilateral and multilateral agencies.
- The primary focus of these guarantees is to serve public interest and support government-related entities.
Conclusion
Rule 276 of The General Financial Rules, 2017, meticulously delineates the strategic objectives for extending sovereign guarantees. By focusing on enhancing project viability, facilitating resource mobilization for public sector entities, and enabling access to concessional international funding, this rule underscores the government’s commitment to leveraging financial instruments for broader public good and economic development. Adherence to these objectives ensures responsible and impactful use of government backing.