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CAG flags another 'guarantee' challenge for Siddaramaiah governmentThe CAG’s warning came at a time when the Congress government is spending Rs 52,000 crore on the five ‘guarantee’ schemes this fiscal. Last year, Rs 36,857 crore was spent on these schemes.
Bharath Joshi
Last Updated IST
<div class="paragraphs"><p> Karnataka Chief Minister Siddaramaiah</p></div>

Karnataka Chief Minister Siddaramaiah

Credit: DH File Photo

Bengaluru: Guarantees provided by the government for loans raised by state-owned undertakings could become the latest headache for the Siddaramaiah dispensation that is already under huge fiscal stress following the implementation of its flagship ‘guarantee’ schemes. 

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According to the latest Comptroller and Auditor General (CAG) report, the government has provided a guarantee of Rs 52,335.74 crore for borrowings of electricity supply companies and the Karnataka Power Corporation Ltd.

This could be a ticking time bomb as the CAG warned that “eventually the entire liability could fall on the state government”, given the losses being incurred by the escoms. 

The CAG’s warning came at a time when the Congress government is spending Rs 52,000 crore on the five ‘guarantee’ schemes this fiscal. Last year, Rs 36,857 crore was spent on these schemes. 

These loan guarantees are considered “contingent liabilities” on the Consolidated Fund of the State if and when the borrower defaults. 

In 2022-23 alone, the government’s outstanding guarantee amount was Rs 38,356 crore (principal and interest) for loans raised by 151 state-run institutions. Of this, the highest guarantee went to the power sector, followed by irrigation, housing, cooperation, transport and others. 

Under the Karnataka Ceiling on Government Guarantees Act, 1999, outstanding guarantees as on April 1 of any year should be less than 80% of the state’s revenue receipts of the second preceding year.

The total guarantees given stood at 30.59% against the prescribed limit.

The CAG’s worry is that the government is continuing to invest in loss-making companies. By March 2023, the government had invested Rs 72,799.77 crore in at least 145 firms, including state-run companies and cooperative banks. This investment included Rs 43,211 crore in companies or corporations that have significant losses. 

“Up to 2022-23, the government invested Rs 43,211 crore in these companies and the cumulative loss accounted up to the end of 2021-22 is Rs 23,298.37 crore. Out of the said cumulative loss, 51% was contributed by escoms. The weakening financial position of escoms poses risks to the financial position of the state,” the CAG stated.

The Finance Department has asked Boston Consulting Group to study loss-making companies and recommend steps for their revival.

“No guarantee provided by the government has been invoked so far,” Additional Chief Secretary (Finance) LK Atheeq said, adding that guarantees are extended only to those institutions whose source of funding is the government.

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(Published 08 August 2024, 03:20 IST)