Para 10.14 — MSO (A&E)
Original Rule Text
10.14 The prima facie adequacy of the amortisation arrangements should be examined in accordance with the general principles set out below:-
1) Amortisation arrangements for loans for unproductive purposes may be related to some extent to the period of maturity of the loan also to the chances of growth of the particular type of unproductive debt. It is, however, sounder and more prudent to relate the arrangements rather to the object of the borrowing than to the currency of the actual loan. The period ought to be comparatively short where the expenditure on the unproductive purpose should more properly be met from revenue, where the assets constructed
from the loan are comparatively shortlived, or where the total of the borrowings for the unproductive purpose is likely to increase rapidly. Where a material asset is produced the amortisation period should never exceed the life of the asset.
What This Means
This rule sets out the principles for evaluating whether a government's debt repayment plan is adequate. For unproductive borrowings, the repayment period should consider the loan maturity, the nature of the expenditure, and how fast that type of debt is growing. The repayment period should be shorter when the spending should properly come from revenue, when the assets created are short-lived, or when unproductive debt is growing rapidly. Critically, the repayment period must never exceed the useful life of the asset created.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Amortisation period should relate to the purpose of borrowing, not just the loan's maturity period
- 2Shorter repayment periods are needed when expenditure should have come from revenue
- 3Short-lived assets require shorter amortisation periods
- 4Rapidly growing unproductive debt warrants accelerated repayment
- 5Repayment period must never exceed the useful life of the asset created
Practical Example
A State borrows Rs. 200 crore for temporary relief shelters expected to last 10 years. The AG reviews the amortisation schedule and finds the government has set a 25-year repayment period. The AG objects, noting that the repayment period exceeds the 10-year asset life, and recommends the schedule be revised to 10 years or less. The AG also notes that relief expenditure should ideally have been met from revenue, making an even shorter repayment period prudent.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Should the amortisation period match the loan maturity?▼
What is the maximum allowed amortisation period?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.