EICC-GOPIO Conference

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EICC-GOPIO Conference

• Jammu Kashmir
• Reform and Reconstruction
• November 9, 2006
• Brussels

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India story

• It is the CHINDIA decade
• India is the flavour right now
• Macroeconomics is looking good
• GDP growth will exceed 8
• Invisible exports up 106
• Manufacturing up 22
• FII flows graduating into FDI

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29 state economies

• India is not a single economy
• It is a group of 29 economies
• Differential levels of development
• Different enabling environments
• Diverse resource endowments
• Next phase of action and reform at state level
• India not one opportunity, 29 opportunity sets

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JK is special

• JK is a Special Category State
• This status gives it
• Limited applicability of national economic
  legislations
• Some rigidities in land laws
• Flexibility in regulatory framework
• Greater quantum of federal assistance on more
  liberal terms

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Infrastructural gap analysis

• Aggregate infrastructure
• Economic infrastructure
• Social infrastructure
• Administrative infrastructure

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Dreadful decade

• During 90s, JK as an economy was devastated
• Biggest damage was decimation of institutional
  capacity, especially, economic administrative
  capacity
• Results
• government finances in a mess
• Expenditure allocations non-developmental
• Infrastructure not maintained and destroyed
• Slump in growth

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Aggregate Infrastructure index
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Eco Infrastructure Disaggregated
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Cost of catching up

• JK is 50 basis points below what it would have
  been
• Each basis point costs Rs 1000 crore
• Financial implications of being where JK would
  have been Rs 50,000 crore

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Strategy Peace via economic reconstruction

• The three R mission
• Revive political initiatives
• Reform the government
• Reconstruct the economy

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Major constraints

• Infrastructure
• Power
• Connectivity
• Communication
• Institutional capacity
• Governance
• Policy regime

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Requirements

• Overall enabling environment
• Well laid out fiscal policy that ensures
  government has investable surplus
• Well defined and effective industrial policy
  which overcomes structural negatives
• Autonomous investment in Infrastructure
  especially power

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JK Changing Conditions

• Socio-Political situation
• Domestic changes
• Democratically elected sub-national government
• Local body election after 32 years
• Same party in power at the Centre and the State
  after 24 years
• First time a coalition government in the state

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Peace process

• International peace process
• Srinagar-Muzaffarabad road opened after 52 years
• Visa requirement within the greater JK abolished
  
• Freer movement of people across the LOC
• Trade relations on the anvil

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Reforming Government

• Creating institutional capacity for
• Instituting a proper policy framework
• Bringing efficiency in expenditure
• Improving delivery of services
• Bring a balance in state finances
• Reduce pre-emption of resources
• Align revenues and expenditures

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Institutional Capacity Building

• Economic Reconstruction Agency set up
• Financial Restructuring Authority in the works
• Privatisation of major corporations, starting
  with Power Development State Corporation

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Public Expenditure Policy

• Basic maintenance activity financed through by
  government
• Series of well-designed interventions, in the
  nature of sectoral specific packages, with
  alternative private funding
• JK Development Fund
• Multilateral Institutional Funding

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Industrial Incentives

• No income tax till 2013
• Capital Investment Subsidy of 30
• Exemption on toll tax till 2015
• GST exemption till 2015
• CST exemption to SSI units till 2015.
• Interest Subsidy of 3 to new industrial units
• 15 price preference to SSI units on landed cost.
  
• Air freight subsidy of 50 at 15 till 2015  

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Industrial policy

• Industrial Committee with the Chief Minister as
  the Chairman for providing response to emerging
  situations.
• Permanent Grievance Redressal Committee
  established.
• No consignment claiming benefit under the
  Industrial Policy 2004 will be detained at the
  entry point of the state for more than 24 hours.

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Economic Reconstruction Plan

• Objectives of intervention
• Expanding economic infrastructure
• Expanding the provision of basis services
• employment and income generation.
• Phase I
• Revive the rural economy of JK by
• Restoring critical rural infrastructure
• Phase II
• Create urban infrastructure
• fiscal consolidation of govt
• Build utilities through PPP

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Peace through Economic Reconstruction

• Prime Ministers Reconstruction Plan
• Timeframe 2005-06 to 2008-09
• Size Rs 240 bn
• Focus areas Power, Roads, Hospitals and Tourist
  Infrastructure
• Asian Development Banks Multi-sectoral
  Investment Plan
• Timeframe 2005-06 to 2009-10
• Size Rs 20 bn
• Focus areas Rural connectivity, Urban
  Infrastructure
• Japanese Bank of Industrial Cooperation
• Timeframe 2007-08 to 2010-11
• Size Rs 35 bn
• Focus areas Water supply and Urban sanitation

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Staggering Numbers

• Prime Ministers Reconstruction Plan Rs 240
  bn
• Asian Development Banks Multi-sectoral
  Investment Rs 20 bn
• Japanese Bank of Industrial Cooperation Rs 37
  bn
• In addition to this,
• Normal spending plans Rs 45 bn p.a
• Three year autonomous expenditure of Rs 340
  bn
• All this money will be managed by and will pass
  through the banking channels of the Jammu and
  Kashmir Bank
• And this is not all..

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Trickle down impact

• Crowding in of investment
• - public investment in infrastructure will
  induces private investment with backward and
  forward linkages
• - Growth of SMEs
• - Growth of ancillaries associated with
  projects picks up
• - Pick up in induced demand of the private
  sector

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Private Investment Picking Up

• Quantity
• Investment in the SME sector till July 2006 Rs
  70 bn
• Proposals in the pipeline Rs 120 bn
• The flow of funds is in the range of Rs 500 bn
• Quality
• Top notch Indian corporates
• Bharti
• Reliance (ADA) Infocom
• Mahindra and Mahindra
• Lupin Laboratories
• Essar telecom

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In real terms

• New Roads 1100 kms
• Macdemisation 2300 kms
• Primary Health Centres 66
• Sub-districts Hospitals 7
• District Hospitals 2

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This means, everyday..

• 5 kms of new roads will be laid out
• 10 kms of roads will be macdemised
• Every week one PHC will be opened/upgraded
• Every two months one SDH

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Economics of Peace

• A. Pure growth effect
• Increased level of economic activity due to
  improved socio-political situation
• For example
• Tourist inflow in 2006 has already crossed 1989
  levels
• Income multiplier of tourism sector is 1.66
• Private sector investments in tourist
  infrastructure
• Credit to tourism industry has picked up

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Reconstruction Impact

• B. Normalcy plus economic reconstruction
• - Economic growth accelerates due to
  reconstruction of economy through
• autonomous investments in physical
  infrastructure
• Induced investment in production activity
• Example
• Acceleration of Economic growth
• State SDP growth 13.5 per cent
• Commercial Agricultural growth 9.7 per cent
• SMEs projected at 16.3 per cent

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Economic Growth Trends
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State Income Composition
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Credit gap

• JK accounts for 0.70 per cent of national GDP
• Yet, it absorbs only 0.30 per cent of total
  national credit
• Productive sectors of the economy account for
  less than 5 per cent of the credit disbursed in
  JK
• Comparable national average is 30 per cent
• JK accounts for 1 per cent of Indias
  population
• Yet it accounts for only less than 0.2 per cent
  of personal credit disbursed in India

•  

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Results of Fiscal Reforms

• Three consecutive zero-deficit budgets
• Revenue surplus up from Rs 128 crore in 02/03 to
  Rs 2800 crore in 05-06
• Fiscal deficit down from 7.5 in 2002/03 to 5 of
  SDP in 04-05

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Revenue Performance
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Fiscal balance
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Power Options

• Increase physical availability by
• Developing 7000 MW over the next 3 years
• Changing the power mix of JK by accessing
  thermal capacity especially in winter
• Increasing the share of JK in some central power
  projects on JK rivers are commissioned

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On the anvil

• Opening up of Power sector
• PPP in Health sector
• Privatisation of Tourist sector
• Development of Financial services sector
• Incentivisation of crafts and SME sector

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Power Development

• JKs water resources offer immense potential for
  commercial hydro power generation.
• The potential is as high as 14,000 MW of hydro
  power investment of 1,50,000 crore
• Only about 10 of this has been exploited so far

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Power sector

• Taking PDC public to create Indias largest power
  utility company
• Reforms in transmission and distribution sectors
• Unbundling transmission and distribution
  entities.  
• Establish a transmission utility company

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The Financial Universe
?New York
? Tokyo
Regional Gap
? Sydney
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A Proposition JK IFC

• JK International Financial Centre A hub for
  institutional financial services
• A financial cluster in the vale of Kashmir
• Window to access regional wealth
• World-class regulations
• International legal system including a commercial
  court
• State-of-the-art communication infrastructure
• 100 foreign ownership

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Sectors of Focus

• Banking Services Capital Markets
• Asset Management Fund Registration
• Islamic Finance
• Reinsurance Captives
• Business Processing Operations
• Ancillary Service Providers
• Non-Regulated Others

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Value Proposition

• JKIFC has its own legal, regulatory judicial
  environment based on best-practices from
  International jurisdictions
• Laws are distinctly different from National laws
• Will provide the platform to list trade in
  financial instruments like Bonds, Equities, Funds
  etc. without restriction of ownership

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To sum up

• JK government is enroute to
• Financial stability
• Infrastructure Development
• Creation of an enabling environment for private
  business
• JK economy is poised for
• Growth
• Absorption of private investment
• Specialisation in financial services under the
  stewardship of JK Bank

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Jammu and Kashmir Bank

• An introduction

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Profile

• Incorporated in 1938 as a limited liability
  company
• Governed by the Companies Act and Banking
  Regulation Act of India
• Regulated by the Reserve Bank of India and SEBI
• Listed on National stock exchange (NSE) and
  Bombay stock exchange (BSE)
• Rated P1 by Standard and Poor-CRISIL
  highest degree of safety
• Four decades of uninterrupted profitability and
  dividends

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Shareholding Pattern
FOREIGN INST. INVESTORS
As on October 27, 2006
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One of a Kind

• Private sector bank despite governments majority
  holding
• Sole banker and lender of last resort to the
  Government of J K
• Only private sector bank designated as RBIs
  agent for banking business
• Carries out banking business of the central
  government
• Collects taxes for Central Board of Direct Taxes
  in J K

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Infrastructure

• Fastest growing bank with 516 branches
• 98 per cent business computerized
• Anywhere, Tele-banking and SWIFT
• Internet, SMS and Mobile Banking
• Globally connected ATM network
• Mobile ATM Service
• Global Access Debit Credit Cards
• Live on RTGS System of RBI

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Financial Services Portfolio

• Insurance joint venture with MetLife
  International .
• Distributor of
• Life Insurance products of MetLife (India) Pvt.
  Ltd. and
• Non-Life Insurance products of Bajaj Allianze
  General Insurance Co. Ltd.
• Providing Depository Services
• Offering Stock Broking Services.
• Collection Agent for utility services provided
  by State and private sector.

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Productivity per Employee
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Capital Adequacy Most
Comfortable
As on 31st March 2005
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Asset Quality (net NPA) Among the Best
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Operating Costs The Lowest
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Super specialist banking

• Knowledge banking foray to create a niche in
• Leather Branch in Chennai
• Spices Branch in Cochin
• Castor Branch in Mumbai
• Could pave way for Commodity Bank

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Addressing financial depth

• JK bank is a Corporate with a Community
• It has a geographical region to itself which
  lacks financial depth
• bank will bring about a financial deepening of
  the regional economy by monetising trade and
  replacing channels of informal finance
• By creating a new financial architecture in the
  state
• Consolidation of existing financial institutions
  by engineering a series of MAs

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Thank you!