Context:

Recently, RBI’ report of the Working Group on State Government Guarantees has been published.

Working Group on State Government Guarantees: RBI Report

• Chart 1 shows the outstanding State-wise guarantees issued as a share of each State’s Gross Domestic Products at the end of given years.

• • The government guarantees are on an increasing trend in 12 States— Andhra Pradesh, Bihar, Chhattisgarh, Haryana, Karnataka, Kerala, Meghalaya, Rajasthan, Sikkim, Tamil Nadu, Telangana and Uttar Pradesh.
  • In Sikkim and Telangana, and Andhra Pradesh, the share of outstanding government guarantees as a share of their GDPs was above the 10% mark at the end of 2022. 
• Chart 2 shows sources used to finance States’ Gross Fiscal Deficit (in %) transition between 2005-06 and 2022-23.
• The National Small Saving Fund (NSSF) was the biggest source of financing. 

• • However, due to policy changes, now market borrowings are the major source. 
• The share of banks and financial institutions has remained low in terms of absolute numbers. However, they are still considerable. 
• The share by Loans from Centre has been increased. 
• Chart 3 shows the loans given by the banks directly to State governments and also to State enterprises that have guarantees from the government. 
• Both have increased in the recent past years (since 2019). 

News Source: The Hindu