SRINAGAR: In what could be termed as a major boost to cross-Line of Control (LoC) trade, PDP-BJP coalition government in Jammu and Kashmir has decided to do away with the barter system in the trade and allow the trade in US dollars by endorsing the proposed institutional mechanism to provide banking facilities to traders for conducting their business across the LoC.
“J&K cabinet, which met in Jammu today with Chief Minister Mehbooba Mufti in chair, authorized the Department of Industries and Commerce to work-out modalities for establishing banking facilities for the cross-LoC trade,” government spokesman and Education minister Naeem Akhtar said.
He said this follows the go-ahead from the Reserve Bank of India (RBI) to institutionalize the cross-LoC trade through a proper banking mechanism and doing away with the present barter system.
Akhtar said this important decision would go a long way in expanding the scope and ambit of the cross-LoC trade.
The cross-LoC trade between J&K and Pakistan administered Kashmir (PaK), which started in 2008, is presently taking place through barter system at Salamabad, Uri and Chakandabagh, Poonch trading points.
21 items, mainly garments, handicrafts, carpets and agricultural, are allowed to be traded through cross-LoC trade.
The traders associated with the cross-LoC trade had been demanding introducing of banking facilities and expansion of tradeable items for boosting the trade.
An official spokesman said banking mechanism will help the trade to grow much faster and enable import and export of listed commodities at a larger scale and faster pace.
“It will address the regulatory aspects related to the trade between India and Pakistan,” he said.
The spokesman said the Commercial banks in Jammu & Kashmir and PaK would provide a facility to their respective exporters to realize their dues by opening a Trade Facilitation Account at their end.
He said the settlement would be done in US dollar with the cross rates between the two currencies arrived via dollar.
“The initial debit and final credit by the exporter’s bank would be through the facilitation account,” the spokesman said adding, “The facilitation account will enable the banks to charge handling/documentation/interest charges. It will also afford a cushion to the banks to bear exchange loss on bank’s books depending on the exchange rate movement”.
He said on credit basis model, the exporter will get the money on day one with the bank debiting facilitation account and parting with its funds until they are paid by the importer and the amount is credited to the Nostro account.
”Interest payable for transactions based on credit shall be included in the facilitation fee. The facilitation fee, for credit based transactions would include interest, documentation charges and handling charges etc,” the spokesman said.
“Transactions shall be possible on collection basis as well bills purchased/discounted/collected basis. No interest shall be payable on transactions done on collection basis,” he said.
The spokesman said goods shall be invoiced in exporter’s domestic currency. “Hence, there is no exchange risk for the exporters. Any exchange risk shall be borne by the importer.”