India owes Pakistan more than Rs 5.6b!

• State Bank of Pakistan believes India has yet to cough up money equivalent to the present-day value of assets that the Reserve Bank of India refused to surrender to Pakistan after partition in 1947 
• The SBP has not written off the unsettled claims from its Statement of Affairs of ‘assets’ as liabilities in the form of Pakistan’s currency, currently in excess of Rs 2.3tr, are largely backed by government securities; the assets in the form of unsettled claims on the RBI equal less than 0.25 per cent of the SBP-issued notes in circulation.

In Pakistan-India relations, it is not just territorial disputes that refuse to fade away even after nearly 67 years, as the division of assets and liabilities of the Reserve Bank of India (RBI) post-1947 also remain incomplete to this day, according to a local media report.

According to the State Bank of Pakistan (SBP), India still owes Pakistan a little over Rs 5.6 billion, mainly on account of assets held with the RBI which are “pending transfer to Pakistan”.

According to the report, Pakistan’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 post-partition in 1947.

From the SBP’s first-ever Statement of Affairs that was issued on its second day of existence, July 2, 1948, to the most recent one released on June 27, 2014, the bank has listed the unsettled claims on the RBI among its “assets” unfailingly for the last 66 years.

ASSETS LISTED BY SBP:

The SBP’s issue department shows the outstanding claims on the RBI under two distinct categories of assets.

The bigger chunk, comprising gold coins worth Rs 4.1 billion, Sterling securities amounting to Rs 501.6 million, Indian government securities worth Rs 240.4 million and Rs 4.9 million of Rupee coins, appears as assets held with the RBI pending transfer to Pakistan. The smaller chunk consists of “India notes representing assets receivable from the RBI”.

According to the agreement between the political leaderships of India and Pakistan, the RBI was to remain the central monetary authority for both countries post-partition, with Indian notes to stay on as legal tender in Pakistan until September 30, 1948.

According to the SBP’s first annual report for 1948-49, the two governments mutually agreed to end the RBI’s status of the common monetary authority from July 1, 1948, as Pakistan became “exposed to grave dangers” without the right to control its currency and banking.

Pakistan was supposed to return the Indian notes and coins present in its currency chests on June 30, 1948 and the ones encashed during the next fiscal year, to the RBI and claim equivalent assets against these from the RBI.

According to historian Aijaz Husain, the Pakistan government was entitled to receive total assets worth Rs 1.7 billion from RBI but the SBP only received assets worth Rs 1.2 billion.

The difference between the claims and the actual amount surrendered by the RBI was Rs 490.8 million. Out of this amount, Indian notes representing assets receivable from the RBI accounted for Rs 430.2 million while assets held with the RBI pending transfer to Pakistan equalled Rs 59 million.

This means that original, unsettled claims of Rs 490.8 million have now ballooned to over Rs 5.6 billion after adjusting for inflation, exchange rate revisions and appreciation of underlying securities during the last six and a half decades.

It seems impossible that Pakistan will be ever able to arm-twist India into paying its claims but the SBP has not written off the unsettled claims and rid its Statement of Affairs of ‘assets’ that practically do not exist.

This is because liabilities in the form of Pakistan’s currency, currently in excess of Rs 2.3 trillion, are largely backed by government securities. So, according to reports, the assets in the form of unsettled claims on the RBI equal less than 0.25 percent of the SBP-issued notes in circulation.