India, Pak Mull Banking Facility for Cross Border Trade

Governments of India and Pakistan are considering a scheme formulated by the Reserve Bank of India for providing banking facility to cross Line of Control (LoC) trade in Jammu and Kashmir, a senior state minister said. Minister for Finance Abdul Rahim Rather told a delegation of Cross LoC traders that the State Government is very keen to give a big boost to the trade between the divided parts of the state, for which all the required measures are being taken. Rather referred to Government initiatives taken for establishing of Bank transaction facilities for the conduct of cross LOC trade through banking transactions. "RBI has already framed a comprehensive scheme which is under consideration of the Governments of India and Pakistan. Once the scheme gets the nod, the Banking facilities would be put in place as per the urges and aspirations of the traders," he said.  The Minister said the traders from other side of the LOC in Pakistan-occupied Kashmir are also keen to have the trade through Bank transactions. "The facility would take over the place of existing barter system of trade, which has various inherent problems concerning the traders’ community," he said. The Minister expressed hoped that respecting the aspirations and expectations of traders in PoK, Government of Pakistan will also take all facilitating steps for promoting this bilateral trade. Rather said the State Government has been interacting regularly with the Centre for including more items in the existing trade itinerary wherein only 21 items have been notified for transaction from Jammu and Kashmir State. Responding to the pleas of the traders, the Minister said legally and constitutionally the cross LOC trade is an intra-State trade.

Steroid Deficiency

Will the RBI’s balancing act revive flagging investment sentiments?  More often than not, clarity emerges at times of immediate distress. Over the past year or so, we have been witness to a game of ping-pong between the government and the Reserve Bank of India over “spiralling” inflation. From the prime minister and finance minister onwards, the government has been claiming that high inflation is a corollary of high growth and has put the ball in the RBI’s court. RBI governor D. Subbarao’s recent statement and raising of rates for the ninth time in 14 months has reinforced that “there is no tradeoff at our levels of inflation” for high growth. That means two things. Despite repeated claims, the government has failed to control inflation, which still shows signs of reverting to double digits and remaining there for the next six months. And the RBI’s big rate hike reflects how inflation is now hurting the growth story. Scaling down the GDP growth forecast to 8 per cent—a percentage lower than the 9 per cent projected by the finance minister in the 2011-12 budget — Subbarao stated: “If inflation comes down to 6 per cent (by March 2012), then we can get on to a higher growth trajectory.” Defending the 9 per cent projection, “which was based on January data”, Planning Commission deputy chairman Montek Singh Ahluwalia stresses: “It is reasonable, in light of the subsequent data, to scale it down slightly to 8.25-8.5 per cent.” He, however, adds that growth projections are constantly changing. As such, he states: “We could have a better assessment in September.”