13 March 2010

IndianCAs: India Budget: Sundry Debtors and share of Pakistan

India Budget: Sundry Debtors and share of Pakistan

THERE is one item consistent and uniform in all Union Budgets from 1950. If you look at the Annexure-3 to the Receipts Budget of India, 2010-11, you will find certain interesting figures.

India ' s debt by the end of March 2011 is expected to be nearly 40 Lakh Crores.

As per the Statement of the Liabilities of the central Government, the Total Liabilities are Rs. 39,44,598 Crores. From this an amount of Rs. 300 crores is deducted and the net liability is shown as Rs. 39,44,298 Crores.

What is this amount of Rs. 300 Crores?

This is supposed to be “Amount due from Pakistan on account of share of Pre-partition debt (Approx)�.

This same amount had been shown consistently in all our budgets since 1950.

In 1950-51, when our total liability was Rs. 2865 Crores, this 300 Crores was deducted to arrive at Rs. 2565 Crores. That is the dues from Pakistan constituted slightly more than 10 percent of our debts. Ten percent of the present liabilities would amount to about 4 Lakh Crores, about 40% of today's budget.

Even at 6% interest per annum, this would amount to approximately Rs. 10,000 Crores now.

The fact is that we are not able to collect this amount from Pakistan for the last 60 years. Why to keep showing it in the budget year after year. Is it to show our inability to collect from Pakistan or do we send a copy of our Budget to Pakistan to remind them gently that they owe us Rs. 300 Crores? Why can't we simply write off this 300 Crores and be done away with it instead of having this blot in all our annual budget year after year? As a goodwill gesture, can't we tell Pakistan that their dues are written off? May be there are diplomatic problems!

Why are Dues from Pakistan shown in Statement of Liabilities of Central Government?

THE position of the undivided Government as on the date of partition was that its outstanding liabilities exceeded its assets so that ultimately it was the debt that was being divided between the two Governments. On a rough estimate the outstanding debt of the Central Government as on the 14th August, 1947, included in this is not merely the outstanding public debt but all its obligations to outside parties such as deposits in Postal Savings Banks, outstanding balances of Post Office Cash and National Savings Certificates, Provident Fund Deposits of Government servants, the amount likely to be paid to the British Government for surplus stores and other property acquired by the Defence Services and the capitalised value of the liability for pensions in payment on the date of partition and pensions earned by serving officers upto that date, was likely to be of the order of Rs. 3,300 crores.

In his Budget Speech of 1948, Finance minister Shanmukham Chetty said, “On a very rough estimate this debt is likely to be of the order of Rs. 300 crores and the rate of interest may be near about 3 per cent. Pakistan's total debt is to be repaid in Indian rupees in fifty annual equated instalments for principal and interest. As a measure of assistance to the new Dominion in its earlier years it has been agreed that the first repayment should commence only in 1952. In addition to the Rs. 75 Crores given to her out of the cash balance of the undivided Government it has also been agreed that India would make available to Pakistan a further sum of Rs. 6 crores for meeting the expenditure on the setting up of Ordnance factories and similar special institutions required by her. This amount will also be added to Pakistan's debt. With this settlement, the terms of which, as the Deputy Prime Minister has already told the House, are generous and conceived in a real spirit of assistance to Pakistan, the purely financial problems arising out of the partition may be said to have been satisfactorily solved.�

That was in 1948, but when it came to payment, nothing came from Pakistan.

In the 1952-53, budget, credit had been taken for a recovery of Rs.9 crores from Pakistan as the first instalment of its debt repayment to India, but not a paisa came.

In his 1954 Budget Speech, Finance Minister Deshmukh said, “the budget for the current year placed the revenue at Rs.439.26 crores and the expenditure at Rs.438.81 crores leaving a nominal surplus of Rs.45 lakhs. In balancing this budget, I had taken credit for a recovery of Rs.18 crores from Pakistan on account of two instalments due from that country in repayment of the partition debt. I have been having discussions on this subject with the Finance Minister of Pakistan and we both hope that it will be possible to commence the repayment of the debt in the coming year. This single factor has made for a deterioration of Rs.18 crores in the revenue budget for the current year, and converted the surplus of Rs.45 lakhs into a deficit of Rs.16. 96 crores.�

In the next year's budget speech, he said, “I am not taking any credit for repayment of partition debt by Pakistan in view of what has happened in the last two years.�

So the debt continues and do we hope to collect it some day?

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