Partition payback: The sixty-seven-year-old I.O.U
When it comes to the relationship between Pakistan and India, it’s not just the territorial disputes that refuse to fade away even 67 years after Partition. The division of assets and liabilities of the Reserve Bank of India (RBI) post-1947 remains incomplete to this day. According to the State Bank of Pakistan (SBP), India still owes it a little over Rs5.6 billion - mainly on account of assets held with the RBI ‘pending transfer to Pakistan’.
In other words, the country’s central monetary authority believes India has yet to cough up money equivalent to the present-day value of the assets that the RBI had refused to surrender to the government of Pakistan, although the latter was entitled to receive them post-Partition.
From the first-ever Statement of Affairs that the SBP issued on its second day of existence – July 2, 1948 – to the latest one released on June 27, 2014, the central bank has listed the unsettled claims on the RBI among its ‘assets’ unfailingly for the last 66 years.
The SBP’s issue department - which deals with currency and the assets that underlie it - shows the outstanding claims on the RBI under two distinct categories of assets. The bigger chunk, comprising gold coins (Rs4.1 billion), sterling securities (Rs501.6 million), government of India securities (Rs240.4 million) and rupee coins (Rs4.9 million), appears as assets held with the RBI pending transfer to Pakistan.
The smaller chunk consists of “India notes representing assets receivable from the RBI”. As per the agreement between political leadership of the two sides, the RBI was to remain the central monetary authority of both India and Pakistan post-Partition, with Indian notes to stay on as legal tender in Pakistan until September 30, 1948.
According to the first annual report of the SBP for 1948-49, the two governments mutually agreed to end the RBI’s status as common monetary authority from July 1, 1948, as Pakistan became ‘exposed to grave dangers’ without the right to control its currency and banking.
As for the Indian notes and coins present in currency chests in Pakistan on June 30, 1948, and the ones cashed during the next fiscal year, Pakistan was supposed to return them to the RBI. Subsequently, the SBP was to claim equivalent assets against these Indian notes and coins from the RBI.
According to historian S Aijaz Husain, the government of Pakistan was entitled to receive assets worth Rs1.7 billion from the RBI. However, the SBP received assets worth only Rs1.2 billion.
The difference between the claims and the actual amount surrendered by the RBI was Rs490.8 million. Out of this amount, ‘India notes representing assets receivable from the RBI’ accounted for Rs430.2 million while assets ‘held with the RBI pending transfer to Pakistan’ equaled Rs59 million.
This means that original unsettled claims of Rs490.8 million have now ballooned to over Rs5.6 billion after adjusting for inflation, exchange rate revisions and appreciation of underlying securities during the last six and a half decades.
So why doesn’t the SBP simply write off the unsettled claims and rid its Statement of Affairs of ‘assets’ that practically don’t exist? In the post-gold standard era, the liabilities in the form of Pakistan’s currency, currently in excess of Rs2.3 trillion, are mainly backed by government securities. That’s why the assets in the form of unsettled claims on the RBI equal less than 0.25 per cent of the SBP’s total liabilities.
The SBP spokesperson shied away from commenting on the issue. But several former central bankers The Express Tribune spoke with believe such a decision can only be taken by the country’s political leadership as doing away with assets is likely to generate a backlash at home. For now, any resolution of outstanding claims on the RBI appears improbable.
Published in The Express Tribune, July 17th, 2014.
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