Prime Minister: Jawaharlal Nehru

The Age Of Stars

Partition, planning, aid consortia and nationalised banks.

Vol. LXXVThe edition of 1949 · The Planned Republic59 records
Prime Minister
Jawaharlal Nehru
President
C. Rajagopalachari, Governor-General
Finance Minister
John Mathai
RBI Governors
C. D. Deshmukh · Benegal Rama Rau

Bank Rate

3%

unchanged on 1948

Rupee per dollar

₹4.76

+43.9% on 1948

Arabian Light

$1.78

−10.6% on 1948

Sterling balances

£621m

No figure for 1948

FX (INR/USD) · 18 September 1949

Sterling devaluation; India follows

INR 3.31 → 4.76 per USD (−30.5% in USD terms); INR/GBP unchanged at 13.33

Pre-period baseline. India stayed in the sterling area, so the City shaped the peg

ReportedOfficial record. Source: IMF par-value records; RBI Report on Currency and Finance 1949-50

Markets & Money

2 items

money · 1 January 1949

RBI nationalised

Reserve Bank (Transfer to Public Ownership) Act 1948

VerifiedOfficial record. Source: RBI chronology

FX · 19 September 1949

Rupee devalued 30.5% against gold and US$ (Rs 3.31 → 4.76 per US$); sterling parity unchanged

−30.5% (US$ per rupee), US$ +44% in rupee terms

Followed sterling (1949-09-18, $4.03 → $2.80). Pakistan did not follow, and Indo-Pak trade froze.

VerifiedOfficial record. Source: RBI chronology; EPW 1949-10-01

Banking

28 items

nationalised · 1 January 1949

Reserve Bank of India is nationalised

4.98 lakh shares acquired

Bank transformed into a state-owned institution, 13 years and 9 months after establishment

VerifiedOfficial record. Source: RBIH1 ch. 17

failed · 1 May 1949

Exchange Bank of India and Africa fails

Rs 85 lakh of RBI advances

A run on the bank's foreign branches; a major portion of its advances "was locked up in airline interests"; the RBI sanctioned Rs 85 lakh between February and April 1949. The bank suspended payment in May 1949 and was ordered to be wound up in July 1949.

VerifiedOfficial record. Source: RBI, History of the Reserve Bank of India, Vol. I, pp. 735–736; ch. 15

Banking Companies Act, 1949 · regulation · 1 January 1949

Banking Companies Act, 1949: Comprehensive banking legislation at last, post-Partition context

VerifiedOfficial record. Source: RBIH1 ch. 2 p. 66; ch. 22

Government of India · 1 June 1949

Government of India: Indian delegation to London

£181m additional

UK agreed a release of £81m for the year ended June 1949 and £50m for outstanding OGL XI liabilities, and raised the 1949-50 and 1950-51 releases from £40m to £50m each

VerifiedOfficial record. Source: RCF4950

Government of India · 1 August 1949

Government of India: Indo-United Kingdom Financial Agreement of August 1949: no quantitative limitation on India's drawings on the…

Indo-United Kingdom Financial Agreement of August 1949: no quantitative limitation on India's drawings on the sterling area's central reserves; India re-admitted to full membership of the sterling area, undertaking in common with other Commonwealth countries to cut dollar imports in July 1949–June 1950 to 75 per cent of 1948

VerifiedOfficial record. Source: RCF4950

Bank of England / UK Government · 18 September 1949

Bank of England / UK Government: Sterling devalued by 30.5 per cent against the US dollar

30.5 per cent

VerifiedOfficial record. Source: RCF4950

Reserve Bank of India · 20 September 1949

Reserve Bank of India: Rupee devalued with IMF concurrence from 30.225 to 21 US cents and from 0.268601 to 0.186621 grams of fine…

Rupee devalued with IMF concurrence from 30.225 to 21 US cents and from 0.268601 to 0.186621 grams of fine gold; the sterling value of the rupee unchanged at 1s 6d; announced 20 September, effective 22 September 1949

VerifiedOfficial record. Source: RCF4950

Reserve Bank of India · 30 June 1949

Reserve Bank of India: C. D. Deshmukh's term as Governor ends (he had served from 11 August 1943)

Sir Benegal Rama Rau succeeds him from 1 July 1949 and serves until 14 January 1957

VerifiedOfficial record. Source: RBIGOV

Government of India / HM Treasury · 1 July 1949

Government of India / HM Treasury: London financial talks

The RBI's official history records that a fresh deal was reached in which Governor Deshmukh played a prominent role, and that the talks were framed by Britain's agreement with Egypt in March 1949, which "contain[ed] terms more generous than those offered to India in the June 1948 agreement"

VerifiedOfficial record. Source: RBIH2-PLENTY

Reserve Bank of India / HM Treasury · regulation · 1 August 1949

Reserve Bank of India / HM Treasury: UK–India exchange of letters further extending the Financial Agreement, effective from 1 July 1949

81

Because no transfer had been possible in 1948-49, India is permitted to anticipate the 1949-50 and 1950-51 transfers and to obtain such additional transfers as are needed to hold the No. 1 Account at £30 million; India drew £81 million under this arrangement. For the remainder of the Agreement the deficit with all countries is to be consistent with transfers of up to £50 million per annum; transfers of not more than £50 million are provided for in each of 1949-50 and 1950-51

VerifiedOfficial record. Source: UNTS134-1796

State Bank of Pakistan / HM Treasury · regulation · 5 August 1949

UK–Pakistan exchange of letters further extending the Financial Agreement to 30 June 1950, effective from 1…

12

UK–Pakistan exchange of letters further extending the Financial Agreement to 30 June 1950, effective from 1 July 1949: up to £12 million transferred from No. 2 to No. 1 Account on the State Bank's request, plus up to £5 million for refugee resettlement; the UK notes that Pakistan may ask for additional transfers to import food grains and agrees to consider such a request; reference to the recent Commonwealth Finance Ministers' meeting and the drain on the sterling area's central reserves

VerifiedOfficial record. Source: UNTS134-1797

Government of India · regulation · 22 September 1949

Ordinance empowering Government to impose export duties on vegetable oils, oilseeds, vanaspati, shellac, steel…

8 annas per lb on mustard oil; 45 per cent ad valorem (partially OCR'd)

Ordinance empowering Government to impose export duties on vegetable oils, oilseeds, vanaspati, shellac, steel and tobacco and to enhance duties on raw jute and jute manufactures, to appropriate part of the devaluation windfall

ReportedOfficial record. Source: RCF4950

Government of India · regulation · 5 October 1949

Government of India: Eight-Point Programme announced, following devaluation

ReportedOfficial record. Source: RCF4950

Reserve Bank of India · 5 July 1949

Reserve Bank of India: First official sales of bullion since the war: RBI sold silver on behalf of the Hyderabad Government and gold…

silver 21,635 bars (23.45m oz) at Rs 10.29 crores; gold 70,500 (unit cut off in OCR)

First official sales of bullion since the war: RBI sold silver on behalf of the Hyderabad Government and gold on behalf of the Nizam

ReportedOfficial record. Source: RCF4950

Government of the United Kingdom · 18 September 1949

Sterling is devalued. The Government of Pakistan's Finance Minister, Ghulam Mohamed, is informed in Washington…

30.5

Sterling is devalued. The Government of Pakistan's Finance Minister, Ghulam Mohamed, is informed in Washington on 16 September 1949 that London had been compelled by "American pressure and of events" to devalue the pound by 25–30 per cent

ReportedPeer-reviewed. Source: ANKIT2023

Government of India · 19 September 1949

Government of India: India devalues the rupee in step with sterling

Ankit characterises the Indian decision as "defensive": "its trade was 'so largely a trade with sterling area countries and the price level being already high… there was no alternative to… maintaining the ex[change]'". Deshmukh had recommended devaluation; he had also told Ghulam Mohamed that Pakistan "should follow suit 'owing to the same causes…'"

ReportedPeer-reviewed. Source: ANKIT2023; see 06-ww2-finance-sterling.md` for the parity figures

Government of Pakistan · 1 September 1949

Government of Pakistan: Pakistan declines to devalue

15

The Government of Pakistan was not yet a member of the IMF and was therefore "neither required to do so nor to make haste in doing so". Zahid Husain, the first Governor of the State Bank of Pakistan, advised in his note of 18 September 1949 that Pakistan should devalue by 15 per cent, warning that the Reserve Bank of India financed a large part of Pakistan's jute exports; he was overruled

ReportedPeer-reviewed. Source: ANKIT2023

State Bank of Pakistan · 15 November 1949

The State Bank of Pakistan declares the official rate for the Pakistan rupee

143.94

The figure is cut off in the text I extracted; the post-delinking dealing rates recorded by Ankit are: Reserve Bank of India buying Rs 69-8-3 and selling Rs 69-6-6 for Indian Rs 100; State Bank of Pakistan Rs 144-0-9 buying and Rs 143-13-3 selling for Pakistan Rs 100

ReportedPeer-reviewed. Source: ANKIT2023

Banking companies

Banking Companies Act, 1949

The comprehensive Act at last; see the RBIH1 chapter "A Commercial Bank Regulation Act at Last". Post-Partition context

VerifiedOfficial record. Source: RBIH1 ch. 22

hard-currency imports

Hard-currency import and drawing limits

75 per cent of the 1948 dollar-import level for July 1949–June 1950, assumed in the August 1949 agreement; drawing ceiling of £15m ($60m) on the central reserves for the year to 30 June 1949

VerifiedOfficial record. Source: RCF4950; HAN4807

exchange rate

Devaluation of the rupee, 20 September 1949

Rupee devalued in terms of the dollar and gold exactly as sterling was, with the sterling parity unchanged at 1s 6d; the IMF concurred; announced 20 September, effective 22 September 1949

VerifiedOfficial record. Source: RCF4950

export profits

Export Duties Ordinance, 22 September 1949

Empowered Government to impose export duties on vegetable oils, oilseeds, vanaspati, shellac, steel and tobacco and to enhance duties on raw jute and jute manufactures, to capture part of the devaluation windfall

VerifiedOfficial record. Source: RCF4950

sterling area

Sterling area membership

India re-admitted to full membership of the sterling area in August 1949, with no quantitative limitation on her drawings on the area's central reserves, in exchange for the 75 per cent dollar-import undertaking

VerifiedOfficial record. Source: RCF4950

banking

Banking Companies Act / comprehensive banking legislation

The RBI History records that during the war "in the sphere of banking regulation … the enactment of comprehensive legislation was more urgent, its consideration was delayed and only ad hoc enactment of some urgent measures of regulation was resorted to. However, towards the close of the war, active steps were taken in hand for the enactment of the Banking Companies Bill"

VerifiedOfficial record. Source: RBIH1

India–UK financial relations

Indo-British Financial Agreement (1949)

£8m extra for 1948-49; annual release raised £40m → £50m for the years ending June 1950 and June 1951; extra release for O.G.L.-XI liabilities; quantitative limits on dollar drawings from the central reserves removed

VerifiedOfficial record. Source: eparlib.nic.in.57701 ch. II.2.27

sterling area parity

Devaluation

The pound was devalued in September 1949 and the sterling area followed; the FRUS 1949 Vol. IV ch.24 file (docs 431–460) is the US record, and the UK parliamentary record is in the Hansard 1949 sterling-balance written answers

VerifiedOfficial record. Source: history.state.gov

former rulers

Merger agreements and covenants; Constitution Art. 291

Rulers were guaranteed "the full ownership, use and enjoyment of all private properties (as distinct from State properties)" by inventories filed with the Government of India or the Rajpramukh; anything not inventoried went to the successor government; disputes over private vs State property went to arbitration by a judicial officer; privy purses were made tax-free and charged on the Consolidated Fund

VerifiedOfficial record. Source: MENON1956, "The Cost of Integration"

prices and imports

Eight-Point Programme, 5 October 1949

Post-devaluation package of price, import and monetary measures

ReportedOfficial record. Source: RCF4950

Trade & Tariffs

4 items

Export duties raised on jute goods and other staples after the devaluation

Captured the devaluation windfall for the exchequer (EPW discusses export duties blunting the export…

Captured the devaluation windfall for the exchequer (EPW discusses export duties blunting the export incentive). Exact rates not extracted.

ReportedPeer-reviewed. Source: EPW 1949-10-01

Refusal to recognise the Pakistan rupee's cross-rate, then the Indo-Pakistan Trade Agreement of 1951-02-25/27

Trade deadlock, then a bilateral agreement (to 1952-06-30) that accepted Pakistan's par implicitly

ReportedOfficial record. Source: FRUS 1951 vol VI pt 2 doc 493; CommonLII, India Treaty Series 1951 No. 5

Commonwealth Finance Ministers' conference (London, July 1949): sterling-area dollar import cut

Sterling-area members agreed to cut dollar imports (by about 25% on 1948, commonly cited) to defend the…

Sterling-area members agreed to cut dollar imports (by about 25% on 1948, commonly cited) to defend the central reserves. India cut its own licences for dollar-area goods. The 25% figure is not verified by me against a primary communiqué.

UnconfirmedPeer-reviewed. Source: secondary (Schenk, Britain and the Sterling Area, 1994, as cited in Abreu), not seen

Rupee devaluation, 1949-09-19 (30.5% against the US$ and gold, following sterling's devaluation of 1949-09-18)

Sterling parity held at 1s 6d

Dollar imports became dearer and exports to dollar markets cheaper. The sterling balances had no devaluation clause, so their dollar value fell by about US$1,011 mn (Abreu).

VerifiedOfficial record. Source: RBI chronology 1935–49; EPW 1949-10-01; Abreu TD 643

War & Unrest

1 item

South Asia

Indo-Pakistan "trade war" after India devalued and Pakistan did not (Sept 1949 to Feb 1951)

India refused to deal at the new cross-rate (a 44 per cent price differential). Trade came "practically to a standstill", which hit raw jute and cotton supplies to Indian mills. Ended by the trade agreement of 1951-02-25/27 (to 1952-06-30). The IMF then accepted Pakistan's par (March 1951).

ReportedOfficial record. Source: FRUS 1951 vol VI pt 2 doc 493; Economic Weekly 1951-03-24 "Revaluation of the Rupee"; Mukherjee, Modern Asian Studies (2023) "Delinking the two rupees"

The Ledger: what was borrowed in 1949

Full ledger →
CreditorInstrumentAmountUS$ mStatusGrade
IBRDLoan P009588, approved 1949-08-18, India's first World Bank loan34 USD34repaidverified
IBRDLoan P009586, 1949-09-2910 USD10repaidverified
India as creditor; HM GovernmentWilson–Krishna Menon agreement, 1949-08-01 (London)100 GBP403Superseded 1952reported
IBRDRailway Project loan (P009588; loan 17-IN), approved 1949-08-1834 USD34Disbursed and repaidverified
IBRDAgricultural Machinery Project (P009586), 1949-09-2910 USD10Disbursedverified

Rows are listed as recorded. Some describe the same loan from different sources and must not be added together.

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