FINANCIAL AGREEMENT BETWEEN THE UNITED KINGDOM AND INDIA
London, 14 August 1947
The Government of the United Kingdom of Great Britain and Northern Ireland (hereinafter referred to as “the Government of the United Kingdom”) and the Government of India, Being desirous of making a temporary arrangement for dealing with the sterling balances of India. Have agreed as follows:
Article I
For the purposes of this Agreement the sterling assets of the Reserve Bank of India shall be taken at the figure of £ 1,160 million.
Article II 1. The Reserve Bank of India shall open with the Bank of England a new account (hereinafter referred to as the “No. 2 Account”), to which the balance of the total assets referred to in Article I above, remaining at the close of business on the date of the signature of this Agreement, shall be transferred.
2. The No. 2 Account of the Reserve Bank of India shall be operated upon in accordance with the provisions of Article VI of this Agreement and any sums standing to the credit of the said Account shall be available only for the purposes prescribed in that Article.
Article III.
There shall also be established at the Bank of England in the name of the Reserve Bank of India a new account (hereinafter referred to as the “No. 1 Account”) to which any sterling received after the date of this Agreement by the Reserve Bank of India in respect of current transactions and any sums transferred from the No. 2 Account shall be credited.
2. The Government of the United Kingdom shall not restrict the availability of sterling standing to the credit of the No. 1 Account for payments for current transactions in any currency area or for the purpose of any payment to residents of the sterling area.
Article IV
1. There shall be transferred forthwith from the No. 2 Account to the No. 1 Account £35 million less the amount by which the total of the Reserve Bank of India’s sterling assets, as established by Article I of this Agreement, exceeds the amount transferred to the No. 2 Account in accordance with paragraph 1 of Article II of this Agreement.
2. There shall also be transferred from the No. 2 Account to the No. 1 Account the equivalent of any sums paid from the No. 1 Account after the 15th July, 1947, in respect of:
(i) the transfer of ownership of military stores, equipment and fixed assets in India from the Government of the United Kingdom to the Government of India on the 1st April, 1947;
(ii) the settlement of any matters outstanding under the Defence Expenditure Plan and of any other accounts relating to transactions which were connected with the War and took place prior to the 15th July, 1947;
(iii) payments outside India as a result of Agreements for the release of assets which were vested in the Indian Custodian of Enemy Property;
(iv) pensions paid outside India by or on behalf of the Government of India or any Provincial Government in respect of which an eventual capitalisation scheme is contemplated;
(v) such other items as the two Governments may agree.
3. There shall be transferred from the No. 1 Account to the No. 2 Account the equivalent of any sums paid into the No. 1 Account after the 15th July, 1947, in respect of:
(i) the settlement of any matters outstanding under the Defence Expenditure Plan and of any other accounts relating to transactions which were connected with. the War and took place prior to the 15th July, 1947;
(ii) such other items as the two Governments may agree.
1. In addition to the transfer provided in paragraph 1 of Article IV of this Agreement there shall also be transferred forthwith from the No. 2 Account to the No. 1 Account a sum of £30 million as a working balance which may be drawn upon from time to time to meet any temporary shortage in India’s available means of payment abroad.
2. The level at which the working balance provided for in this Article has been maintained during the currency of this Agreement shall be taken into consideration in the consultations referred to in Article XI of this Agreement in the light of such data as may then be provided.
Article VI
(a) The No. 2 Account referred to in Article II of this Agreement shall be credited with—
(i) the assets referred to in Article II of this Agreement, including the proceeds thereof at maturity or on realisation;
(ii) the proceeds at maturity or on realisation of any investmente purchased in accordance with established custom with funds standing to the credit of the No. 2 Account;
(iii) transfers from the No. 1 Account, being transfer6 provided for in paragraph 3 of Article IV and paragraph 2 of Article VIII of this Agreement;
(iv) such other transfers as may be agreed between the two Governments.
(b) The No. 2 Account shall be debited with—
(i) transfers in accordance with paragraphs 1 and 2 of Article IV, paragraph 1 of Article V and paragraph 2 of Article VIII of this Agreement;
(ii) payments in respect of investments made in accordance with established custom;
(iii) such other transfers as may be agreed between the two Governments.
Article VII
The Government of India shall not restrict—
(a) the acceptance by residents of India, in settlement of payments for current transactions, of sterling at the disposal of residents outside India;
(b) the availability of any Indian rupees arising from permitted current transactions and accruing to residents of the sterling area for any payments inside India or for the purchase of sterling.
Article VIII
Such transfers of capital from India to the rest of the sterling area and vice uersa as may be agreed between the Reserve Bank of India and the Bank of England shall be subject to the provisions of paragraph 2 of this Article.
2. The Reserve Bank of India and the Bank of England shall consult together at agreed intervals in order to establish by reference to the best statistical data available to them the net capital movement from India to the other countries of the sterling area, or vice versa as the case may be, resulting from the agreed transfers of capital. Thereafter an amount equal to the net capital movement so established shall be transferred from the No. 2 Account to the No. 1 Account if the movement is one from India to the other countries of the sterling area or from the No. 1 Account to the No. 2 Account if the movement is in the reverse direction.
3. Notwithstanding anything in this Article the two Governments shall not restrict transfer of capital from India to the United Kingdom representing—
(a) remittances of saving belonging to person of United Kingdom origin leaving India in order to take up permanent residence in the United Kingdom; and
(b) the voluntary repatriation of investment by person regarded as resident in the United Kingdom for purpose of exchange control in the United Kingdom.
4. Transfers of capital falling within the description in sections (a) and (b) of the preceding paragraph shall be included in the computations for which paragraph 2 provides.
Article IX
The two Governments shall as often as may be necessary consult together with a view to ensuring the smooth working of the present Agreement. The Reserve Bank of India and the Bank of England shall be entrusted with the technical execution of this Agreement and shall consult together as often as may be necessary in order to ensure its smooth working. Article X For the purpose of the present Agreement—
(a) in relation to events happening on or after the 15th August, 1947, references to the Government of India shall be construed as references to the Governments of both the new Dominions set up by the Indian Independence Act, 1947, or to the Government of either of them, as the circumstances require, and the expression “India” shall continue to denote the territories included in that expression immediately prior to the 15th August, 1947;
(b) the expression “sterling area” shall have the meaning from time to time assigned to it by the Exchange Control Regulations in force in the United Kingdom. After the coming into force in the United Kingdom of the Exchange Control Act, 1947, the expression “sterling area” wherever it occurs in the present Agreement shall be deemed to have been replaced by the expression “scheduled territories”, which shall have the meaning from time to time assigned to it in the aforesaid Exchange Control Act, 1947;
(c) the expression “payments for current transactions” shall have the same meaning as in Article XIX(i) of the Articles of Agreement of the International Monetary Fund;
(d) in paragraph 2 of Article IV the expression “pensions” shall have the meaning assigned to it in the Indian Independence Act, 1947. Article XI The present Agreement shall come into force on the 14th August, 1947. It shall terminate on the 31st December, 1947. Further consultations shall be held before the termination of this Agreement with a view to extending it or replacing it by another Agreement or other Agreements.
IN WITNESS WHEREOF the undersigned, being duly authorised thereto by their respective Governments, have signed the present Agreement.
DONE at London this fourteenth day of August, 1947, in duplicate.
For the Government of the United Kingdom:
WILFRID EADY.
For the Government of India:
V. NARAHARI RAO.
READ MORE
