GOI formulated a Debt Swap Scheme realising the mounting burden of interest payments on the states, and to supplement their efforts towards fiscal management. The scheme was in operation from 2002-03 to 2004-05. The scheme capitalized on the current low interest regime, to enable States to prepay expensive loans contracted from GOI, with low coupon bearing small savings and open market loans.
The scheme covered outstanding high cost loans with interest rate of 13% and above. An amount of Rs 106076 crore was prepaid to GOI by the States from small savings loans and open market borrowings. State wise details of the outstanding high cost loans at the start of the scheme and level of swap are given in the