Srinagar: Saying that cheap, affordable and abundant credit flow is must for the reconstruction of the infrastructure and reviving the economy in the aftermath of September floods, Kashmir-born British economist and investment banker, Mehrajdin Mattoo Saturday said that Jammu and Kashmir needs a bank which is owned and controlled by the state.
“Jammu and Kashmir needs to have a bank that is subservient to the state and represent the economic will of the people rather than the business interest of its share holders,”Mattoo, who has headed a number of banking institution and has taught economic in elite universities of the world, said while delivering a public lecture at University of Kashmir.
Critcising the J&K Government’s decision of privatizing J&K Bank, he termed it an “an act of plunder”.
“In my opinion, one of the biggest blunders the government of Jammu and Kashmir made was that they privatized Jammu and Kashmir Bank,” Mattoo said. “So one of the first things that the government needs to do and you must fight for is to bring J&K Bank back to the state. Jammu and Kashmir bank must begin to be the banker of the people of this state and not lend money to the businesses outside this state, who have access to a large number of financial institutions out there.”
Mattoo blamed that due to some ‘pity interests’, state government has turned a prime credit creation institute into an ordinary business, which is now being gauged by the awards it receives instead of its function to the develop the economy of the state.
For Mattoo, who has been the founder of the Commonwealth Capital, a hedge fund and global head of Germany based Commerzbank, the only way for the economy of the state to develop is that government must bring the J&K Bank in state fold. “People must fight for that. … and if that does not happen then the J&K Government must get up and create another bank, which should replace J&K Bank as the] state bank and that bank must behave like every other state-owned bank in every other developing country,” Mattoo said.
For tackling the problem of unemployment, which though is an existing problem in J&K but will now increase manifold in the post flood scenario, Mattoo said state needs businesses, new and existing, but that are growing. And for the businesses to flourish there needs to be credit flow.
“If state don’t tackle the problem of unemployment in a constructive way, unemployment will deal with the state in a very destructive way,” he said.
Providing the example of Germany, Mattoo said J&K too can develop small and medium enterprises (SME) to tackle the problem of unemployment. He said all the banks and financial institutions in the German economy, the biggest in Europe, are geared towards promoting the SMEs.
In J&K’s case, all the businesses and budding entrepreneurs could go to the J&K Bank for their credit requirement but no more. “Because Jammu and Kashmir Bank, which was created for this state, has now become the bank of the rest of India,” Mattoo said, adding, “It certainly mops much of the deposit base in the state but a small portion of its lending takes place within J&K. That is a huge bottleneck, because while the problem is creating unemployment and the solution is creating new business and growing existing businesses, there are little finances available for that.”
Emphasizing on the need for a state-owned bank a must for the development and prosperity of the any developing place like J&K, Mattoo said, “When a mighty country like China, which has an economy four times bigger than the Indian economy does not pravatise its state owned commercial banks, who is the state of Jammu and Kashmir to do so.”
Talking about the fear of the bad loans, Mattoo said, “When we build something to last we don’t care about the loss. That loss has been paid by every developing country, even west has paid that and we too need to pay that for the prosperity.
The nonperforming loans of the four state-owned commercial banks of China today are 10 percent. In 1998 the nonperforming loans of these four Chinese commercial banks amounted to 40 percent.”
Mattoo said another major problem is that government of this state is very bloated but mostly inefficient. It is important that people who man ministry of finance and related institutions must be the right person with the relevant knowledge and expertise, he also said.
He said besides lack of investment and unemployment problem, it is the rampant inflation and corruption that will emerge as big challenges for the state to deal with in the post flood scenario and state does not have tools to deal with it.
“This state does not have physical capital like available resources, neither it can control money supply or interest rates, the micro economic tools to change the economic scenario, so the root of the economic development is the political economy,” Mattooo said, adding, “It is the political economy which the state government can leverage in the federal structure.”