RBI new debt manager for J&K

‘Decision to put state government in a tight position in long run’

BILAL HUSSAIN

The Reserve Bank of India, Central Bank, has entered into a supplementary agreement under Section 21A of the Reserve Bank of India Act, 1934 with the Jammu and Kashmir government to carry banking business of the state government. Experts here oppose the agreements and term it long run ‘economic subjugation’.
The agreement shall be effective from April 1, 2011. “The Reserve Bank of India shall carry on the general banking business of the government of Jammu and Kashmir and act as the sole agent for investment of government’s funds,” a handout of the RBI said.
According to the sources it was on the recommendation of the state government, that the Reserve Bank of India has entered into an agreement with J&K Bank Ltd. whereby J&K Bank —state’s premier financial institution— would act as an agent of the Reserve Bank of India, for conduct of general banking business of the state government.
The RBI in a statement said, “The Reserve Bank of India has already been acting as a debt manager to the government of Jammu & Kashmir pursuant to an agreement entered into with the state government under Section 21 A of the Reserve Bank of India Act, 1934, with effect from September 1, 1972.”
However, contradicting its own statement, the RBI website said that the state government transactions are carried out by RBI in terms of the agreement entered into with the state governments in terms of Section 21 A of the Act. “As of now, such agreements exist between RBI and all the state governments except with the Governments of Jammu and Kashmir and Sikkim,” it mentions.
The Chairman and Chief Executive Officer of Jammu and Kashmir Bank, Mushtaq Ahmad told Kashmir Times that The J&K Bank acts as an agent of RBI for conduction of general banking business of the state government and for other related matters. When asked if they have any communication from the state government, Mushtaq Ahmad said, “As of now we haven’t received any formal communication from the state government about the same.”
Noted economist of the state, Professor Nissar Ali told Kashmir Times that the existing system was the unique route available to J&K government only. “It used to provide comfortable position to the state to get overdraft from J&K bank and to bridge the mismatches on account of funds as it takes time for the state to receive funding from New Delhi,” he added.
At present J&K Bank provides an over draft of about Rs 2300 crores to the J&K government. Prof Ali believes that the present move would put the state government in a tight position in lthe ong run, as “ours is a resource deficient sate, so revenue flow is too little”.
According to Prof Ali, the agreement for J&K Bank would mean an immediate short run problem. “The bank is in pressing need to look for the ways to deploy Rs 2000 crores in one go,” Prof Ali added.
The agreement, according to well informed exerts on the matter said that it would push the state toward ‘total dependence’ on New Delhi and terms it ‘economic suppression’.

PDP lambasts NC’s move
Reacting sharply on handing of the general banking business and conceding debt management of the state to Reserve Bank of India (RBI), Peoples Democratic Party (PDP) in a statement has said this is the latest and most lethal nail in the coffin of state’s autonomy by National Conference (NC). The party president Mehbooba Mufti has said, “the decision removes the last fig leaf that the ruling party tried to cover its real intentions and duplicity with.”
“The decision is an enslaving mechanism for the state government that is already reeling under the economic deprivation and begging bowl syndrome caused by the sell out of resources by successive NC governments,” party president PDP said.
“J&K Bank is not only a flagship financial institution of the state but it represents the ability of our professionals to script great success story” she said expressing her apprehensions that the new arrangement could be the first step towards its liquidation as a state owned company.
The PDP president said while NC’s autonomy resolution never made its way out of the then ally L K Advani's shredder, on ground the party seems to be doing everything to further surrender whatever had remained of it. That becomes evident from the clear RBI statement that the decision was taken at the request of the state government.
Blasting NC for its repeated blunders, she said, “while the historic U-turns and lack of vision of the NC ensured that intellectual growth was stunted, Farooq Abdullah settled the natural resources debate forever by handing over the most feasible power projects to NHPC.”
“And now Omar seems to be dedicated to give up the remaining,” she said, and feared that the banking changeover could prove a huge setback to the state in terms of achieving self sufficiency and economic self sufficiency.
Mehbooba said NC's political history can hardly boast anything by way of institution building, but J&K Bank was perhaps the only prime institution that professionals from the state developed and could be proud of. Not only would the viability and growth prospects of the bank be restricted by this decision, she said there was no doubt that state’s financial position would be massively compromised.