During the height of demonetisation drive,
Sikkimese people faced a shortage of currency due to the unavailability of new
denominations due to RBI restrictions. For the Government of Sikkim, this step
constituted a major breach of special provisions and a step towards the
“nationalisation” of its most important banking institution with its legacy
from the erstwhile Kingdom of Sikkim.
Demonetisation in
Sikkim is well worth recording, for its impact on Sikkimese cultural
communities and the state’s otherwise largely rural–agrarian economy which
differs vastly from the experiences of rest of the country. The impact of
demonetisation bears a trajectory of Sikkim’s unique position in the Indian
Union after Sikkim’s “absorption” in 1975 as the 22-constituent state with the
grant of “autonomy” envisaged under Article 371F of the Indian Constitution.
Although, the rulers
of the land, the Chogyals (Dharma Raja) of the Namgyal Dynasty, lost Sikkim as
a political entity, but its royal decrees and proclamation command perception
of authority and veneration even to this day. Consequently, the autonomy
question that Sikkim faces is mediated, incorporated and appropriated by
India’s constitutional machination where Sikkim’s law—legal or customary—under
the Chogyals, often bracketed as “old laws,” govern’s and regulates Sikkimese
cultural communities to this day.
The application of
Indian law in Sikkim is, therefore, a subject of verification, in that if such
similar laws (in relation to other parts of India) exist in Sikkim’s “old law”
clause, so at this juncture “old laws” override national legislations in favour
of sound implementation of “old laws” within the territory of Sikkim. In other
words, Article 371F of the Indian Constitution permits for the perseverance in
force any Sikkimese laws that were in operation prior to Sikkim’s absorption in
the Indian Union, unless amended or repealed by a competent authority.
Sikkim's Fiscal Autonomy
The extent of autonomy
that Sikkim enjoys, concurrently, enables the state to maintain the traditions
of erstwhile theocratic subjectivities and the subjectivities of a modern
nation state. What is of utmost importance in Sikkim’s case is the story of the
unique relationship between Sikkim and the centre, highlighting facets of
Indian nationhood which are different from the experiences of homogenous
European nation states.
The aforementioned
aspect of relations between Sikkim and the centre is premised on autonomy
(cultural, economical and political) granted to numerous cultural communities
within the respective zones of habitation in parts of the north-eastern states
of India. One example of such concessions relates to fiscal concessions
provided to cultural communities in remote areas of the country. For example,
the Government of India has extended Income Tax (IT) exemption facilities to
those categories of people who are qualified as “Sikkimese” as per the Sikkim Subject
Regulation Act, 1961. This fiscal concession is granted on income generated
within the territory of Sikkim and returns from surplus on securities generated
elsewhere.
In addition, the State
Bank of Sikkim’s (SBS) functional operation, independent of Reserve Bank of
India (RBI) regulations, drew political contestations because of its autonomy,
including income generated by SBS. It is alleged that the fiscal concessions
extended to Sikkimese cultural communities and the fiscal autonomy of SBS
together provided a path to turn undisclosed earnings as legitimate. This
argument was used by opposition parties which rallied to target the ruling
Sikkim Democratic Front (SDF) government. Even more surprising is the audacious
story aired by some mainstream Bengali electronic media house based in Kolkata
drawing parallels of Sikkim with Switzerland and SBS with Swiss Bank as a haven
for black money.
Instead, the SDF
government chose to respond by invoking Sikkim’s special provisions under the
“old law” clause, thereby projecting imageries truly of Sikkimese
“nationalists” and spelling Sikkim’s unique history in the nation state as
entirely different from Bengal and other regions in India.
However, in order to
comprehend Sikkim’s fiscal autonomy and the shape of states’ financial health,
understanding the temperament of banking operations of SBS is extremely
important. SBS is a state-owned network of banking systems with several
branches in many parts of the state with its headquarters at Gangtok. The bank
was established by the Royal Proclamation Order of the Chogyal in 1968 and
receives constitutional protection under Article 371-F of the “old law” which
upon absorption in the Union in 1975. The banking services and its operations
are confined within the territory of Sikkim. Its functions in Sikkim—other than
banking services—include the role of treasury to the Government of Sikkim.
SBS is the only
banking institution in India which functions independent of RBI regulations. In
more recent times, RBI has begun contesting the status of SBS on the hypothesis
that financial and operational issues of the SBS do not come under its
jurisdiction, RBI as a regulatory authority is apprehensive about the interests
of Sikkimese depositors. The RBI has also reiterated that its nomenclature is
misleading depositors as it appears like an affiliate of forming loans. In
addition, it was highlighted that the Non-Performing Assets (NPAs) used by SBS
as a financial institution was high and severe. RBI has quoted that, absence of
banking regulations deprives SBS of Deposit Insurance and Credit Guarantee
Corporation (DIGCC) cover in case of financial emergencies, etc. It is ironic
that an RBI dictum was served after 42 years of SBS’s functional operation
independent of the RBI regulations.
This “specious ground”
around which RBI sought to destabilise Sikkim’s financial autonomy led to
freezing of individual accounts of Sikkimese populace. Despite freezing of SBS
accounts, people came forward and deposited old currency notes at nearby SBS
branches without any doubts. To add to the confusion, opposition parties in
Sikkim rallied a sentiment, a projectile that was a direct threat to SBS
autonomy. This is not the first time in India that political parties have
engaged in politicising autonomy of financial institution such as that of
banking operations. SBS today remains the only bank in India which remains
independent of RBI regulations in India. In a similar case, the entry of RBI
has substituted the Jammu and Kashmir Bank as the general banking agent for
investment in Jammu and Kashmir (J&K). The J&K Bank functioned as the
central bank of J&K government often borrowed funds from its treasury
during financial crisis. The RBI regulation makes it mandatory for the state
government to seek permission and justify reasons for borrowing funds from
other sources. The financial autonomy of such a banking system allows a state
like Sikkim to approach SBS for overdraft facility in a manner in which the
J&K Bank had been providing to J&K government. The overdraft facility
of such banking functions is similar to that of fiscal autonomy that Sikkim
exclusively enjoy in India.
SBS releases funds for
Government of Sikkim related projects and state government employees draw
salaries, pensions and arrears without delay, etc. The interest rates it
provides to its depositors are mutually agreed upon by the bank and the state
government. During the height of demonetisation drive, Sikkimese people faced a
shortage of currency due to the unavailability of new denominations due to RBI
restrictions. For the Government of Sikkim, this step constituted a major
breach of special provisions and a step towards the “nationalisation” of its
most important banking institution with its legacy from the erstwhile Kingdom
of Sikkim. The weak public memory of Sikkimese people to echo on such
sentimental issues following RBI diktat obliged the Government of Sikkim to
evoke institutional memory by reinforcing and reminding the centre of Sikkim’s
late and unusual entry as a constituent part in the Indian nation state as its
reference point for negotiations.
The Union Minster of
Home Affairs, Rajnath Singh sensing trouble in his official communiqué dated 8
December, 2016, directed the Ministry of Finance under Arun Jaitley to oversee
successful implementation of demonetisation programme. The communiqué appraised
the finance ministry to clear such road blocks that would invite condemnation
both for demonetisation programme and GOI under the BJP a bad name in Sikkim.
Further, it stressed that Sikkim was a politically sensitive region in India
and that its people be allowed to withdraw from SBS as other people had been
doing from their respective banks in other parts of the country. The most
important aspect of the official communiqué lists that Sikkimese people are in
fact a special category of Indian population are at not par with other Indian
citizen.
Importance of the State Bank of Sikkim
One of the many ways
in which Sikkim is a special state in India is the fiscal autonomy it enjoys
through its banking networks which actually allows it to manage its fiscal cap
with limited RBI oversight and without its operational control. An attempt to
bring the RBI in the centre stage of fiscal management in Sikkim implies
derailment of Sikkim’s autonomy in determining and allotment of permissible
ceiling on Ways and Means Advances (WMA) for the state government. It is
extremely important to understand the role of RBI in determining the limit on
WMA for state governments and screening utility on limits of every day basis in
India. So far, the overdraft limit for the Government of Sikkim is mutually
decided by SBS and Government of Sikkim without external interference from
external agencies. RBI’s attempted inroads into Sikkim’s banking network will
shift the power in favour of Government of India. The effort to bring Sikkim
into “mainstream” financial regulations was in a way to deprive SBS of the
surplus generated from the Government of Sikkim.
Under RBI regulations,
the WMA policy maintains that cash balances of state governments have to be
invested in treasury bills and dated government securities of Government of
India which SBS and Government of Sikkim is not covered. In this, SBS and GOS
as shareholders are allowed to keep dividends from its low-cost deposit and not
the Government of India. This has so far allowed SBS and the Government of
Sikkim to evolve its independent fiscal policy to establish its daily
expenditure beyond the WMA limit. It is important to note that state
governments are already at the mercy of Ministry of Finance, Government of
India for meeting their expected annual expenditure.
The RBI cap on daily
expenditure of Government of Sikkim beyond the WMA limit tilts the power
balance in favour of the Government of India. The forces of the nation state in
Sikkim have been coming in different forms and different magnitudes at
different timelines, and the demonetisation bears such a trademark of nation
state. Despite this, SBS remains the only bank in India which remains at the
centre stage of fiscal relations between the centre and state after the J&K
Bank was relegated to a secondary role after RBI’s takeover of managing J&K
finances in 2010–11.
So far, for the
Government of Sikkim to have its own state bank as its lender epitomises the
state’s financial and fiscal autonomy. It symbolises Sikkim’s quasi-independent
position of possessing its own central bank in semblance with Government of
India having the RBI as its central bank. The importance of SBS is that it has
functioned as a quasi-sovereign financial institution with similar functions of
a central bank except printing its own currency for circulation.
The weakened position
of the Government of Sikkim at this juncture could have propelled a rupture to
Sikkim’s autonomy envisaged under Article 371F of the Indian Constitution. It
is a historical fact that political arrangements mandated by the Constitution
of India under its special provisions have integrated many communities in the
Indian nation state, simultaneously allowing them to govern as per their
customary subjectivities. Within this framework, Sikkim has only been an
exception within this exception. This postcolonial anomaly is a feature of the
Indian nation state; one has to bear in mind that, Sikkim now a constituent
part of the Indian Union, in essence, remains a successor state of the
erstwhile Kingdom of Sikkim.
Courtesy :- EPW Engage http://www.epw.in/engage/article/demonetisation-test-sikkims-autonomy
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