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Saturday, Mar 01, 2003

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How much do we really owe?

D. Sampathkumar

JUST how much do we as a nation collectively owe to ourselves and the rest of the world? The latest Union Budget expects this figure to touch Rs 17,80,064 crore as of March 31, 2003. (Actually it also claims that it has to get about Rs 300 crore from the Government of Pakistan as an offsetting claim. But that is another story.)

But what is of interest is that the actual figure could be higher by another Rs 1,20,000 crore. The Government has simply understated its external liability. It discloses it external liability at Rs 71,546 crore as of March 31, 2002. But according to the RBI's annual report for 2001-02 India's external liability as of March 31, 2002, stood at Rs 1,93,316 crore resulting in an understatement of liability of Rs 1,21,770 crore.

The figure of external debt as of March 31, 2003 is put at Rs 57,649 crore reflecting perhaps the pre-payment of external debt of the order of $3 billion as announced by the Finance Minister. Even if we assume that the Government has not contracted any fresh external debt the net reduction in the discrepancy in the two sets of official figures could at best be only a sum of Rs 15,000 crore.

How has this discrepancy come about? This is what the Government says in the Annexure 3 to the Receipts Budget 2003-04.

"The outstanding stock of external liabilities is reckoned at historical rates of exchange on which the liability was initially accounted for in the books of accounts after netting the repayments made at current exchange rates."

Shorn of legalese, what the Government is saying is that if it had borrowed one dollar at a time when the rupee-dollar parity was at Rs 10 to a dollar, it would recognised as worth Rs 10. But if 10 cents out of that was repaid at a time when the dollar parity had moved up to Rs 20, the repayment would be reckoned as worth Rs 2. But the net amount outstanding itself, would in rupee terms be shown as worth Rs 8. Never mind that common sense would suggest that the rupee value of the outstanding loan be reckoned as actually worth Rs 18!

The Government is perhaps aware of the anomaly. The accounting procedure, it says, `is under review.' But therein lies the rub. That is exactly what it said last year as well while disclosing similar debt figures then. Despite the passage of one full year it has still not been able to come to a conclusion that its accounting treatment needs to be changed. There has been a ritualistic reference to this `review' in the earlier years as well. It is just as well that the Government is not a listed corporate entity in the US. It would have had a class action suit on its hands for wrongful disclosure in the post-Enron era of investor activism.

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