What was the scheme to reduce interest burden of the State Government in India through gradual conversion of high cost debt into a low cost debt known as ?

The Debt-swap scheme was introduced by the Government of India to reduce the interest burden of State Governments by facilitating the gradual conversion of high-cost debt into low-cost debt [t1]. Specifically, the scheme allowed states to utilize the prevailing low-interest rate regime to prepay expensive loans (often with interest rates of 13% and above) previously contracted from the Central Government [t3][t7]. By replacing these high-interest liabilities with fresh borrowings at lower market rates or through small savings proceeds, states could significantly lower their debt-servicing costs [t1][t5]. This mechanism was a critical fiscal tool during the early 2000s, particularly following the recommendations of the Finance Commission to improve state-level debt sustainability. While 'debt consolidation' and 'debt write-off' are also debt management terms, they refer to the restructuring of repayment periods or the cancellation of debt, respectively, rather than the specific interest-rate-driven swap mechanism described.

Sources

1. [1] https://finance.odisha.gov.in/sites/default/files/2020-04/chap_16.pdf
2. [2] https://www.indiabudget.gov.in/budget_archive/es2006-07/chapt2007/chapter2.pdf
3. [3] https://www.jstor.org/stable/4416964