Sunday, February 28, 2016

India-Pakistan : Budget Quirk

Jayanta Roy Chowdhury

If there is one figure which is repeated in every single Indian budget document since the 1948 budget framed by the then finance minister late R.K. Shanmukham Chetty, it is a debt of Rs 300 crore which Pakistan is supposed to owe India.
The figure is never written off nor padded up with supposed interest due as any banker would do if a debtor fails to cough up moolah on time. The current finance minister, Arun Jaitley, will be no exception in mentioning this tiny debt in his Receipts Budget as a liability of the central government.
Old timers in North Block, home to the finance ministry admit that this a sum which India is unlikely to ever recover but say they would not write it off as this could give Pakistan an unfair advantage during any “future financial settlement” as Pakistan too shows a sum Rs 580 crore as dues against the Government of India !
This little quirk in the  history of India’s budget making is a relic of a pact that India signed with her western neighbour and twin soon after Independence in December 1947.  While the legendary Shanmukham Chetty, an economist-turned politician who had served as Diwan of Cochin earlier, signed on behalf of India, lawyer-turned civil servant Malik Ghulam Mohammed signed for Pakistan. 
Independent India's first Cabinet 

Undivided India as on August 14, 1947, had more liabilities than assets. So the two sides decided they would while dividing assets also divide the liabilities and agree to pay each other the difference between the two. 
A complex piece of calculation figured out that all outstanding debt and obligations including Post office deposits, National Savings certificates, Government Provident Fund etc., worked out the princely sum of Rs 3,300 crore. 
While the assets of the Government of Unidivided India which included the Railways and the Posts and Telegraphs, the Security Printing Press, the Central Government’s  irrigation works, the Port of Vizagapatnam and Lutyen’s New Delhi; besides buildings, stores and equipment of the Defence Services as well as cash balance of RBI and subscriptions to the International Monetary Fund and the World Bank, amounted to Rs 2,800 crore.
After much haggling the two sides agreed that Pakistan’s share of this debt would be Rs 300 crore  to be payable to India.  Chetty in his 1948 budget speech made to the Constituent Assembly 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 installments 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.” 
Though the late C D Deshmukh, another legendary finance minister, claimed a credit of Rs 9 crore in his budget of 1952 as payment from Pakistan towards this debt, no money actually came in. 
Pakistan on its part refuses to pay up and instead has come up with a counter claim that its bigger neighbour owes it Rs 580 crore instead. This claim is similarly reflected in The state Bank of Pakistan's annual documents since July 2, 1948. just a few days after it came into being!   
Pakistani accountants argue that India owes the nation Rs 410 crore in gold bullion, Rs 50.16 crore worth of British Sterling Pounds and the remainder in Indian notes and coins as its share of the money held by Reserve Bank  on August 15, 1947.
Luckily for the two sides, Bangladesh which as a successor state to United Pakistan and who could well claim at least half of whatever notional amount India allegedly owes Pakistan or Pakistan owes India, has not made any counter claims to muddy the waters ! 
Finance Minister Shanmukham Chetty