Loan waiver not on government’s balance sheet: tax expert

March 7th, 2008 - 6:22 pm ICT by admin  

A file-photo of KPMG
By Dipankar De Sarkar
London, March 7 (IANS) A top tax consultant from India told a meeting of British investors here that the Rs.600 billion farm loan waiver announced by the government in last week’s budget has not been accounted for. “This farm loan waiver is not on the balance sheet of the government as far as 2008-2009 is concerned,” Sudhir Kapadia, partner and head of tax, KPMG, told a meeting of investors, businessmen and bankers brought together to discuss the Indian budget Thursday.

What the government has done is to ‘amortise’ - an accountancy term for gradually writing off a debt - the future allocations of the farm loan waiver over three years, Kapadia told the meeting of British business heavy weights organised by the UK-India Business Council (UKIBC).

The government plans to reimburse the banks to the extent that they write off these loans, he said - something that has made the banks “very happy actually.”

Kapadia said he thinks the write-off will be financed by the issuance of government bonds or a similar instrument to the banks.

“What the government has done is very simple: they will create a liability on their balance sheets by way of these bonds, which will have to be repaid down the line in 10 years, 15 years, 20 years. Hopefully the asset side of the balance sheets will be sufficient to take care of the liability side of the balance sheet.”

Kapadia made his comments in a formal presentation after UKIBC Chairman Lord Karan Bilimoria commended the budget.

Bilimoria said the combination of Prime Minister Manmohan Singh, Finance Minister Palaniappan Chidambaram and Planning Commission Deputy Chairman Montek Singh Ahluwalia means British investors aren’t just knocking on India’s doors, but that there is “a crescendo”.

Kapadia agreed with Bilimoria’s overall assessment, saying, “I don’t think anyone is questioning the need for some kind of relief (for farmers). It’s the methodology, which, from an accountancy and prudence point of view, leaves much to be desired.”

“It has been a well-kept secret among the government, actually, as far as the boldness of the budget is concerned,” he added.

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