Transcript EICC-GOPIO Conference Jammu & Kashmir: Reform and Reconstruction November 9, 2006

EICC-GOPIO Conference
Jammu & Kashmir:
Reform and Reconstruction
November 9, 2006
Brussels
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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J&K is special
• J&K 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, J&K 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
100
90
80
70
60
50
40
30
20
10
0
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J&K
All
India
1985
2003
7
Economic Infrastructure Index
80
75
Index
70
J&K
65
60
55
1985
1990
2003
Years
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Eco Infrastructure: Disaggregated
200
150
100
50
1985
0
2003
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10
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Cost of catching up
• J&K is 50 basis points below what it would
have been
• Each basis point costs Rs 1000 crore
• Financial implications of being where J&K
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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J&K: 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 J&K
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
– J&K 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 J&K 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 Minister’s Reconstruction Plan:
Timeframe : 2005-06 to 2008-09
Size : Rs 240 bn
Focus areas: Power, Roads, Hospitals and Tourist Infrastructure
Asian Development Bank’s 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 Minister’s Reconstruction Plan:
Rs 240 bn
Asian Development Bank’s 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 SME’s
- 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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Infrastructural spending
3000
2646
2500
2000
1598
1500
1198
985
1000
500
2002-03
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2003-04
2004-05
2005-2006
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In real terms
•
•
•
•
•
New Roads
Macdemisation
Primary Health Centres
Sub-districts Hospitals
District Hospitals
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=
=
=
=
=
1100 kms
2300 kms
66
7
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
6
5.5
5
4.5
4
3.5
3
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State Income: Composition
Secondary
13%
Primary
34%
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Tertiary
53%
34
Credit gap
• J&K 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 J&K
•Comparable national average is 30 per cent
• J&K accounts for 1 per cent of India’s 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
10
9
8
7
6
tax/sdp
5
4
3
2
1
0
non-tax/sdp
20012002
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20022003
20032004
20042005
20052006
20062007
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REVENUE SURPLUS : TRENDS
2000
1438
Rs Crore
1500
1025
1000
500
128
0
-500
-1000
1999/0
-542
-1500
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2000/1
2001/2
-334
2002/3
2003/4
(RE)
2004/5
(BE)
-960
YEARS
38
Fiscal balance
Revenue Surplus as % NSDP
14.00
12.75
12.00
10.10
10.00
7.01
8.00
6.00
4.00
3.80
4.22
4.93
2.00
0.00
2001-2002
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2006
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
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Power : Options
• Increase physical availability by:
– Developing 7000 MW over the next 3 years
– Changing the power mix of J&K by accessing
thermal capacity especially in winter
– Increasing the share of J&K in some central
power projects on J&K 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
• J&K’s 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 India’s 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
Regional
Gap
 Tokyo
 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
• J&K government is enroute to:
– Financial stability
– Infrastructure Development
– Creation of an enabling environment for private
business
• J&K economy is poised for
– Growth
– Absorption of private investment
– Specialisation in financial services under the
“stewardship” of J&K Bank
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Jammu and Kashmir Bank
An introduction
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
profitability and dividends
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uninterrupted
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Shareholding Pattern
GOVERNMENT OF J&K
FOREIGN INST. INVESTORS
53.17%
31.94%
12.05%
RESIDENT INDIVIDUALS 1.44%
INDIAN MUTUAL FUNDS
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0.32% NON RESIDENT INDIANS
1.08%
BODIES CORP. / BNKS / INS. CO.
As on October 27, 2006
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One of a Kind
• Private sector bank despite
government’s majority holding
• Sole banker and lender of last
resort to the Government of J & K
• Only
private
sector
bank
designated as RBI’s 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
60
48.25
50
39.4
Rs. in Mn.
40
31.9
29.8
30
24.6
20.6
20
15
12.4
10
9.6
7.7
0
FY-96 2006
FY-97
6 November
FY-98
FY-99
FY-00
FY-01
FY-02
FY-03
FY-04
55FY-05
Capital Adequacy :
Most Comfortable
16.0
Tier I CAR (%)
14.0
13.6
12.5
12.0
9.6
10.0
9.3
9.1
8.9
8.2
8.0
8.0
7.7
7.6
ICICI
Vijaya
Bank
7.3
6.0
4.0
2.0
0.0
As6onNovember
31st March 2005
2006
Corp.
Bank
J&K
Bank
HDFC
Bank
UTI Bank
SBI-C
PNB
BoB
SBI
56 Canara
Bank
Asset Quality (net NPA) :
Among the Best
% of NPAs
3.00
2.56
2.30
1.96
2.00
1.30
1.19
1.00
0.30
0.00
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Series1
STATE
2.56
ICICI
2.30
FEDER
1.96
UTI
1.30
J&K
1.19
HDFC
57
0.30
Operating Costs : The Lowest
OPERATING COST / AVERAGE ASSETS % - FY-05
3
2.7
2.4
2.5
2.4
2.3
2.3
2.2
2.1
2.1
1.9
2
1.7
1.5
1.5
1
0.5
0
PNB
HDFC
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SBI
UTI
BoB
VIJAYA
CORP
BANK
CANARA
ICICI
ORIENTAL
J&K
BANK
58
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
J&K 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 M&As
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Thank you!