Economic Imperialism

BILAL HUSSAIN

Last month Jammu and Kashmir government faced a financial crunch that forced the state government to borrow from open market to meet its day-to-day expenses. It is believed that the government functioning has taken a hit in the state and work on the development front has suffered as the coffers went dry.

The delay in plan allocation, according to officials, forced the state government to borrow Rs 300 crore from the open market through the RBI route at the interest rate of 8.9 percent after approval from the Union Finance Ministry. It has been learnt that the state government had in its budget for 2014-15 projected the plan size of Rs 11,900 crore including Rs 7300 crore main plan, Rs 4000 crore assistance under Centrally Sponsored Schemes and Rs 600 crore assistance under the Prime Minister’s Reconstruction Plan. A report carried in a daily, quoting an official said: “The State’s financial health is in bad shape and the liabilities at the treasuries have piled up to more than Rs 1500 crore.”

The development reminded me of an article I wrote in January, 2011 about how the agreement between Reserve Bank of India and government of Jammu & Kashmir will have long run impact in furthering the state’s dependence on New Delhi. I wrote then: “The other dimension to look at the agreement is that it would push the state towards ‘total dependence’ on New Delhi and is a kind of economic subjugation. The state now would have to frequently go to New Delhi with a begging bowl for petty finances as well.” 

The pact has not only resulted in financial dependence of the state but also reduced the Jammu and Kashmir Bank --the state’s iconic financial institution-- to act as an agent of the Reserve Bank of India for conduct of general banking business of the state government. The Jammu and Kashmir Bank Limited [J&K Bank] was incorporated on 1st October, 1938  and commenced its business from 4th July, 1939 in Kashmir. The Bank was the first state owned  bank in India. The bank was constituted as a government company under Companies Act, 1956 and was functioning as ‘bankers to the state government’, according to Dion Global Solutions Limited.

The Reserve Bank of India --Central Bank of India-- 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. The agreement came into effect since April 1, 2011. The RBI agreement entitles RBI to be the sole agent for investment of state government’s funds. It is being said that on the recommendation of the state government, the Reserve Bank of India has entered into an agreement with J&K Bank Ltd. Prior to the agreement, the operations were being transacted and managed through J&K Bank.

Earlier, J&K Bank used to act a crucial contributor to the state’s financial stability by way of offering overdrafts against relaxed terms.The state used to borrow an overdraft to the tune of Rs 1500 crore from the J&K Bank to meet various kinds of financial requirements through Ways and Means Account.  The J&K Bank overdraft was often necessitated by the delays in financial assistance from New Delhi. The concerned officials here of the opinion that the process of getting funds from New Delhi is tough.

This was bound to happen as New Delhi used Reserve Bank of India [RBI] to impose economic imperialism. When the state requires urgent financial assistance to avoid economic catastrophe, it usually turns to the RBI. Although this assistance constitutes a crippling debt for the borrower, the RBI also insists on economic reform as a condition to the loan. In effect the RBI will take this opportunity to render the struggling economy of J&K. 

Prioritizing debt repayment, market liberalization and privatization allow corporations and private interests to capitalize on these reforms. The economic consequences for the state of J&K are often dire.  In essence it will involve structural adjustments that the state will have to face in near future.