Why in news:

• The Union Territory administration of Jammu and Kashmir has announced constitution of the Consolidated Sinking Fund (CSF) and the Guarantee Redemption Fund (GRF).

Key Points:

• In order to meet the fiscal challenges and liquidity constraints, the Union Territory administration has approved the constitution of the Consolidated Sinking Fund (CSF) and the Guarantee Redemption Fund (GRF).
• The funds intended for meeting the contingent liabilities of the Government have been approved by the Administrative Council which met under the chairmanship of Lieutenant Governor, Manoj Sinha, with an initial corpus of Rs. 30.00 crores for each Fund.
• It is noteworthy here that the Consolidated Sinking Fund (CSF) is a reserve fund set aside by the Reserve Bank of India (RBI). The provision for this fund is made in Article 266 (1) of the Indian Constitution. Consolidated Sinking fund is to aid States/ UTs wherein the Government has problems handling their finances, including debt. CSF promotes economic restructuring in States/UTs, especially those with chronic remuneration obligations.
• A Guarantee Redemption Fund (GRF) is established in the Public Account of India for redemption of guarantees given to PSEs, financial institutions, etc. by States/UT Govts, whenever such guarantees are invoked.
• When the borrowing organizations fail to service their debt burden covered under State Government Guarantee, the lending Banks/ Financial Institutions invoke the State Government Guarantee. This becomes liability of the State Government. The Guarantee Redemption Fund shall be utilized for meeting the payment obligations arising out of the guarantees issued by the UT Government in respect of bonds issued and other borrowings by the UT level undertakings or other bodies/ institutions.