Andhra seeks removal of counter guarantee clause

The Andhra Pradesh government has sought the removal of counter guarantee requirement for borrowings by the government-owned corporations and agencies in a bid to unlock the investment potential available to the state in the form of lending by overseas agencies.

"We moved a proposal in this regard with the department of economic affairs (DEA), Government of India, and we are awaiting a positive response," a senior government official said, questioning the rationale of the mandatory counter guarantee norm.

"In what way the government is concerned if an entity registered under the Companies Act borrows money to fund its activity," he asked. As with the borrowings, the provision of counter guarantee also has its upper limit.

"Currently many lending agencies and financial institutions such as World Bank, Asian Development Bank (ADB), JBIC, KFW and some entities from Central Asia are eager to fund projects in the state. Andhra Pradesh has a clean repayment record and economic viability. If the DEA accedes to our request, the state would get at least Rs 70,000 crore funds from overseas financial institutions in the next five years," he pointed out.

According to the official, while the JBIC is proposing to invest in several projects, including outer ring road, high voltage distribution system (HVDS) besides Rs 1,600-crore loan for irrigation projects, the ADB has proposed to invest in the 500 mega watt Bhupalapally thermal power project and other new Genco projects.

The World Bank is willing to lend up to $ 1.3 billion to various projects, including irrigation projects whereas the KFW, the German bank, has expressed its willingness to fund the 1,600 mega watt Krishnapatnam thermal power project.

The finance department is flooded with frequent enquires by overseas lending institutions seeking details of economic growth of the state besides funding requirements since it makes a good sense to lend to states like Andhra as they get an interest of over 7 per cent instead of 2-3 per cent that they get in the US and Europe, the official said.