No interest waiver for state loans

However, the Ministry is in favour of restructuring the debts by swaping high cost loans with low cost loans, official sources said on Tuesday.

In a recent communique to the planning commission, the Finance Ministry disfavoured the proposal of waiving interest payments on loans taken by various states from the centre, the sources said.

The finance commission had earlier listed out various options including waiver of interest and debt restructuring to assist debt-ridden states to come out of financial crisis.

Finance ministry sources said the centre has already agreed to swap debts worth Rs 40,000 crore (Rs 400 billion) in this fiscal.

"Rs 40,000 crore has been earmarked for debt swap scheme this fiscal - Rs 16,000 crore (Rs 160 billion) for market borrowing and Rs 24,000 crore (Rs 240 crore) for small savings," a senior official said.

Last fiscal, the entire amount of the debt swap scheme were transferred to the National Savings Scheme.

"But this fiscal, we will transfer Rs 29,000 crore (Rs 290 billion) to NSS and the remaining Rs 11,000 crore (Rs 110 billion) would be utilised for normal expenditure," he said.

States would be encouraged to borrow more from the open market and get loans from the centre at a reduced interest rate of 9 per cent from this fiscal, the official added.

States have pitched for a lower interest rate of 8 per cent on loans taken from the centre.