This is an abridged version of Chapters 1 and 2 of Volume I of the History of State Bank of Pakistan, compiled Mr S. Aijaz Husain, former Director Corporate Affairs SBP, prepared for Business Recorder by Chaudhry Rashid A. Javed, former Consultant (History) SBP. Every effort has been made to retain the original text except that some paragraphs have been merged and foot-notes dropped.
The write-up provides a bird's eye view of the circumstances leading to the establishment of State Bank of Pakistan on July 1, 1948 and is a mirror reflection of India's hegemonic attitude in resolving mutual disputes whether it be the Kashmir dispute or the Disputes of Baglihar or Kishanganaga.
The new state of Pakistan was the culmination of a long and grim struggle dating back to the middle of the nineteenth century. It was carved out of what is now known as the Indo-Pakistan subcontinent, which was a part of the British Indian Empire. The subcontinent was partitioned in the middle of August, 1947.
In India, the transition was relatively smooth, while in Pakistan where everything had to begin from the beginning it was beset with overwhelming odds, which perhaps no other nation had to face on the birth of its independence.
This was manifest from the haste with which the Partition Plan was pushed through without preparatory homework and a fool proof arrangement to ensure a fair division of assets and liabilities and a impartial international machinery to settle their disputes arising out of so complicated an undertaking. The transfer of power from the British was not accompanied by the transfer of Pakistan's share in its resources. India's reluctance and even refusal to part with what legitimately belonged to Pakistan, was symptomatic of the shape of things to come.
Pakistan's political sovereignty, though universally recognised, was not complete without its economic independence in the realm of public finance, currency and banking, which were conspicuous by their absence. The country had no central bank or, for that matter, a banking system worth the name. The Reserve Bank of India which was legally a common property of both the States was taken over by India as if by a prescriptive right. With the monetary resources and instruments of control still vested in the Reserve Bank, even the overnight establishment of a central bank, were it practicable, would not have filled the void.
And, in any case, Pakistan was too heavily pre-occupied with the formidable problem of devising an administrative set-up to undertake the responsibility of setting up a central bank. Chaudhri Mohamad Ali, who represented Pakistan on the Expert Committee, responsible for bifurcating the machinery of government between Pakistan and India, gave expression to a widely shared misgiving that the control of central banking function for an extended period by the Reserve Bank was detrimental to the interests of Pakistan.
Within a span of few weeks, nearly twelve million men, women and children were uprooted from their hearths and homes. Over five million arrived in Pakistan within five months under most undescribable conditions of destitution and despair. The nerve-shaking events beyond the frontiers had put Pakistan's unorganised economy in a chaotic state, disrupted the lines of communications and brought the administration to a breaking point, all economic activity had come to a standstill.
The shopping areas were lying empty and the crops in the fields were standing unattended without agricultural labour to look after their harvesting and upkeep. The sources of agricultural credit, too, had dried up. The commercial banks had also ceased to function. Wheat and cotton were the two major crops around which the economy of West Pakistan had revolved. Neither of them was locally consumed in its entirety, a sizable quantity being exported to other parts of the subcontinent in the Indian Union, Bombay and Ahmadabad, and the surplus quantity was exported abroad.
The viability of the new state according to well informed knowledgeable foreign sources was based on the assumption that it produced nine tenth of India's wheat surpluses, one third of the rice surplus and one third of total cotton production. The colonial pattern of trade inherited from the British was seriously dislocated by post-Partition developments.
In the colonial era not only the commerce of the Punjab and the Frontier was diverted from its natural route through Karachi but of Sind itself was subjected to unnatural diversion. The British had left one of the finest harbours in the region underdeveloped and given all the encouragement and attention to Bombay. Karachi was no more than a fishermen's town.
Conditions in East Bengal, which was the most populous province of Pakistan, were far from reassuring. Its political autonomy was, however, qualified by the presence of a large and powerful Hindu minority. It formed the educated elite of society, dominant in services and business alike. Like West Pakistan, East Pakistan was an agricultural hinterland of West Bengal. particularly for the flourishing jute industry of Calcutta.
Pakistan had no industrial base; its greatest single asset was agriculture. The network of irrigation system which was perhaps its only valuable resource, was fed by the rivers which flowed through Kashmir, now under Indian occupation, could be used to threaten the economic life of Pakistan by withholding the waters. This is precisely what they did on April 1, 1948 on the morrow of the expiry of the Standstill Agreement under which all disputes arising out of the Partition Plan were to be settled through negotiations and arbitration.
In its industrial inventory Pakistan had barely 34 factories which made practically no contribution to the per capita income of its population. There were fourteen textile mills, ten of them located in East Pakistan which produced no cotton, and four in West Pakistan which was the land of the silver fibre, no jute mills in East Pakistan which was a mine of golden fibre, a few cement plants and glass-works was its total count. Agriculture without water or enough water, was inconceivable and commerce without banking unthinkable. Between June 3 and August 14, 1947 was too brief a span for so stupendous a task to be accomplished, for which Pakistan was unprepared.
Whatever the hopes the Hindus had entertained on the basis of their preconceived notions and prejudiced assumptions, Pakistan was determined to demonstrate its capacity to make the state a going and growing concern. It was impossible to organise the machinery of government and its economy, including the essential pre-requisites of productive and distributive mechanism its separate monetary and banking system at such a short notice. India had to go through no such exercise. It had received a unified administration, a viable economy, well-organised banking and currency system and all the requisite services for running the apparatus of a modern state.
With no impartial authority to adjudicate on the peaceful settlement of disputes with India and without international aid or assistance of any kind, Pakistan had to fend for itself. A machinery had to be devised for the collection of revenues for running the government.Then there were problems relating to currency and exchange.
While Pakistan had to have its own currency, it was physically impossible to print new notes and mint new coins by August 15. Interim arrangements had, therefore, to be made before a permanent currency authority was set up. The head offices of most of the banks were located in India and the entire banking structure was almost exclusively manned by Hindus. On the eve of Partition, out of 99 scheduled banks listed on the Second Schedule of Reserve Bank only one had its head office in Pakistan. Out of 3,496 branches of the scheduled banks, only 631 were located in Pakistan.
At that time, it was widely believed that Pakistan would be a financially bankrupt state and the value of its rupee would depreciate in terms of the India rupee. The indigenous bankers had also migrated en-bloc to India. In East Pakistan as well, banks had started closing down in quick succession and money-lenders were winding up their business.
Under these circumstances the entire banking structure in Pakistan had virtually crumbled. The central problem was an equitable sharing of common assets which were in India's possession. Without acquiring its share Pakistan's economic balance sheet was loaded with liabilities. The denial of Pakistan's legitimate claims and the delay in the transfer of its lawful assets, was certain to aggravate its difficulties and cast an ominous shadow on the economic relations between the two countries in the future. India, instead of looking at a backward Pakistan as a potential trading partner, saw in its backwardness an opportunity for the reunification of the sub-continent.
The agreements reached in the Partition Council were ... not comprehensive and even in their limited scope belonged to a low priority area, such as retention of currency and coinage arrangements, issue of notes bearing inscription, 'Government of Pakistan' and circulation of India notes in Pakistan as legal tender, continuance of remittance facilities between the two countries, transfer of movable and immovable property of the Reserve Bank to Pakistan at book value, fixation of ratio of share in the profits of the Bank, protection of the rights of its shareholders in Pakistan, offer of services to recruit staff for Pakistan, assistance for setting up administrative machinery for exchange control.
Even these so-called unanimous decisions were robbed of their unanimity by India's insistence on interpreting them to its own advantage. This was amply borne out by its reluctance to share the profits according to the formula mutually agreed in principle but in practice given a unilateral character by insinuating motives to Pakistan of manipulating the volume of notes to be surrendered which was to form the basis of the determination of its share, its refusal to part with the provident fund and gratuity to which its employees who had opted for service in Pakistan, and at the same time showing concern for the shortage of trained personnel in Pakistan.
And in the area of agreement, how unreasonable was its attitude, became obvious from the manner in which it rejected the suggestions of Pakistan with whose reasonableness no impartial observer could possibly disagree.
The supplementary report on the division of sterling balances, submitted by the Experts Committee on August 5, 1947 was in the nature of a separate memorandum, embodying the views of both sides. Its contents revealed that the Committee could not decide the basic question of the criterion to be applied for dividing these balances. The sterling balances held by the Reserve Bank were largely in the nature of loans advanced by the Government of India to the British Government to finance its war expenditure which had entailed heavy sacrifices on the masses.
The Pakistani representatives argued that these sacrifices jointly made by the people of the two Dominions, should form the most equitable basis for the division of these balances. According to India the average per capita income of Pakistani areas, as a whole, was 32 percent lower than that of the areas in India. Therefore, Pakistan should get a share in the sterling balances, determined on the basis of population plus 32 percent; this worked out to 30.5 per cent of the total sterling balances.
India was disinclined to keep large sterling securities as assets against note issue in the Issue Department and suggested that it was enough to keep a total of gold and sterling securities at 40 per cent of the note issue. The remaining sterling securities should be treated as assets of the Government and should be distributed in a manner already suggested by them (ie population plus 32 per cent).
In the Reserve Bank books, such sterling securities transferred should be replaced by ad hoc securities of Government of India and the share of Pakistan and India in these securities should be on basis of the formula proposed for the sterling securities. As for the sterling balances in the Banking Department, it was suggested that after keeping a balance of Rs 500 to Rs 600 million, the rest should be treated in the same way as sterling securities in the Issue Department.
They proposed that Pakistan's share in the sterling securities held in the Issue Department should be determined entirely on the basis of notes in circulation in Pakistan, and in the Banking Department on the basis of the respective proportion of each country in bank deposits, including their share in the cash balance of undivided Government of India.
The recommendations of the Expert Committee were examined by the Steering Committee for resolving controversial issues and after approval by the Partition Council, were finally embodied in the Pakistan (Monetary System and Reserve Bank) Order, 1947 issued on August 14, 1947. This Order did not, however, refer to some of the important matters on which the Steering Committee had reached agreement. These included:
(i) The Government of India should agree to take two nominees of Pakistan Government on the Central Board of Directors of the Reserve Bank. This would not require any change in the Reserve Bank of India Act, as contended by the Indian members of the Expert Committee.
(ii) The appointment of a Deputy Governor of Reserve Bank by the Pakistan Government, as demanded by the Pakistan's representatives of the Expert Committee, would not be appropriate. However, there should be no objection to the appointment by Pakistan Government of an Officer on Special Duty for maintaining contact with the Reserve Bank.
(iii) It was not in the interest of both governments to encourage unnecessary currency expansion against ad hoc securities. Such an expansion should, therefore, only be allowed subject to certain conditions in case of Pakistan, upto the extent of Rs 400 million against India's ad hoc securities. Besides, in the case of unexpected contingency, the Pakistan Government should have a right to ask the Government of India for further expansion upto Rs 100 million.
The Steering Committee had further recommended that the above limits should only apply upto March-end, 1948 ie before the issue of over-printed Pakistan notes by the Bank from April 1, 1948, but on account of the stiff opposition of the Reserve Bank to this date, the position regarding the overall expansion of currency remained ambiguous.
THE MAIN PROVISIONS OF PAKISTAN (MONETARY SYSTEM AND RESERVE BANK) ORDER, 1947 WERE:
Currency and Coinage: In order to perform its duties as the currency authority of Pakistan, the Reserve Bank was to have the sole right to issue bank notes in Pakistan upto September 30, 1948. While India notes were to continue to remain legal tender in Pakistan upto September 30, 1948 the Reserve Bank was to issue in Pakistan notes inscribed with the words, 'Government of Pakistan', in English and Urdu from April 1, 1948.
Banker to Government: The Reserve Bank was to continue to function as Banker to the Central and Provincial Governments of Pakistan upto September 30, 1948. Management of the Public Debt and Exchange Control was to be taken over by the Government of Pakistan from the Reserve Bank of India from April 1, 1948.
Relations with Scheduled Banks: The Government of Pakistan could declare a banking company having a paid up capital and reserves of not less than half a million of rupees to be a scheduled bank, provided it was not a scheduled bank within the meaning of the Reserve Bank of India Act. The Reserve Bank could, with the previous consent of the Government of Pakistan, regulate its relations with Pakistani scheduled banks and the management of clearing houses till June 30, 1948. The Banking Companies (Restriction of Branches) Act and the Banking Companies (Inspection) Ordinance were to apply to the whole of Pakistan until June 30, 1948. The Reserve Bank was to continue to exercise the same control over Pakistani scheduled banks during the period of its operation in Pakistan, as it had been exercising over the scheduled banks in India.
Remittances Between India and Pakistan: The Reserve Bank was required to provide remittance facilities upto March 31, 1948 at par between its offices in Pakistan and such office or offices in India, as might be prescribed by the Bank.
Management of Foreign Exchange: The Bank was to buy from and sell to any authorised person in Pakistan foreign exchange upto March 30, 1948 at such rates of exchange and on such conditions as the Government of Pakistan would determine from time to time in consultation with Government of India.
Division of Assets of Issue Department: The Reserve Bank was to deliver to Pakistan the assets of its Issue Department equivalent in value to the Pakistan notes issued by it upto June 30, 1948, plus the value of India notes of Rs 2 and above encashed by the Government of Pakistan upto June 30, 1949 and delivered to the Reserve Bank.
Reserve Fund: The Pakistan Government's entitlement in the Reserve Fund of the Bank was to be the same fraction of the amount of the Reserve Fund of the Bank as on September 30, 1948 which would have accrued to the Government of India if the Bank were placed under liquidation on that date, as the fraction of the uncovered debt of the undivided Government of India for which the Government of Pakistan became liable on August 15, 1947.
Division of Bank's Profits: The formula for the division of profits of the Bank, contained in the Order, was basically the same as devised for the division of assets of the Issue Department of the Bank.
Imperial Bank: The Imperial Bank was to act as the agent of the Reserve Bank of India in Pakistan upto September 30, 1948 on the terms and conditions as contained in the agreement made between the Reserve Bank and the Imperial Bank with suitable adaptations.
Status of Reserve Bank in Pakistan: About its legal position the Order provided that the Reserve Bank would cease to be a part of law in Pakistan, following enforcement of this Order in the country. Its status would be that of a corporation existing only by virtue of law of India and capable of suing and being sued as such in Pakistan.
Partition Council's Decisions: Except on minor and peripheral issues the Partition Council was permanently deadlocked on matters of crucial importance to Pakistan. India constituted itself into an arbiter in the dispute. In the cash balances of Rs 4 billion at the time of Partition, it claimed more than a lion's share for itself. Pakistan, in India's view was entitled to no more than Rs 200 million claiming Rs 3800 million as its own apportionment.
Regarding the division of public debt, the main difficulty arose in apportioning the uncovered debt, which represented the excess of liabilities over the assets of undivided Government of India. Pakistan's representatives were of the view that the apportionment of this liability should be in proportion to the contribution made by the areas included in the Dominions of India and Pakistan to the revenues of Central Government before Partition.
Even more serious difference of opinion arose over the proposal made by Pakistani representatives that both Dominions should assume joint responsibility for the public debt of the undivided India and a statutory commission consisting of equal number of Pakistani and Indian representatives, be set up to administer the debt. The Indians feared that the acceptance of this proposal would lead to a collapse of gilt-edged securities market in India,
Chaudhri Mohamad Ali, the Pakistani representative, refused to accept this proposal which was born of unjustified distrust of Pakistan's creditworthiness. Finally, in an effort to break the deadlock, he suggested that the Indian proposal could merit consideration only if the repayment period was spread over fifty years or more, and the rate of interest was the average rate of interest for the Indian national debt.
He indicated his willingness to discuss such a proposal with Quaid-i-Azam, if it was authoritatively put forward. He was accordingly given a proposal, signed by Sardar Patel, under which Pakistan was to repay its share in fifty annual instalments with the first instalment falling due on August 15, 1952. Quaid-i-Azam accepted it provisionally, subject to a satisfactory solution of the cash balance issue.
Before taking this and other disputed issues to the Arbitral Tribunal, Chaudhri Mohamad Ali, made a last minute attempt for settlement by mutual discussion.8 He suggested to H.M. Patel in November, 1947 that, if he agreed, he would request the Finance Minister of Pakistan, Ghulam Muhammad, to come to Delhi and settle all outstanding issues. Both Sardar Patel and Ghulam Muhammad concurred with Mohamad Ali. A meeting was consequently held at the residence of Sardar Patel.
No agreement on controversial issues could, however, be reached in this meeting and it appeared that it would end in failure. At this juncture Sardar Patel said "H.M. Patel and Mohamad Ali have settled between themselves most of the problems.
Let them go into the next room and not come out until they have settled the key problems". They went into the next room and within three quarters of an hour reached an agreement. It was decided that Pakistan's share in the cash balance, uncovered debt of Government of India and in the disputed portion of sterling balances should be fixed at 17? per cent. A formal agreement was drawn up which was signed by the representatives of India and Pakistan in the beginning of December, 1947. All references to the Arbitral Tribunal were withdrawn. The other issues had already been settled at a lower level.
Expansion of Currency against Ad hocs: The limits about the expansion of currency against ad hoc securities was not fully clarified by the Partition Council. It had merely stated that Pakistan Government should seek Reserve Bank's advice on the abolition or expansion of limits for expansion of currency against Pakistan's ad hoc securities after March 31, 1948. Earlier, the Steering Committee had recommended a limit of Rs 400 million for expansion of currency against ad hocs by Indian Government and Rs 200 million, or if necessary, upto Rs 300 million, by the Pakistan Government upto March 31, 1948. However, the entire clause imposing the limit was deleted from the draft of Pakistan (Monetary System and Reserve Bank) Order, 1947.
Transfer of Cash Balances: The Bank's functioning as banker to the Government of Pakistan did not pose any serious problem during the first four months of operations in Pakistan. Thereafter, it adopted an unhelpful posture in meeting the legitimate financial needs of Pakistan Government. Two main issues which created difficulties between the Pakistan Government and the Bank, related to the transfer of Pakistan's share in the cash balances of undivided Government of India and grant of an advance to Pakistan Government against ad hoc treasury bills.
Pakistan's Financial Predicament: Placed in a tight financial corner by India's refusal to release its assets amounting to Rs .550 million and utilising them as if it were a forced interest-free loan from Pakistan, it literally compelled Pakistan to borrow from it an interest-bearing loan to tide over its financial crisis. The irony of the situation was, that with Pakistan's sizeable funds in its custody, India's representatives on the Partition Council expressed apprehension about Pakistan's ability to repay Rs 50 million 'Ways & Means Advance' for a brief duration which they had reluctantly agreed to make in response to our request for Rs 100 million.
In reply to the observations of the Bank, Pakistan's Finance Secretary remarked that the Government of Pakistan was of the view that to restrict ways and means advances to Pakistan Government to only Rs 50 million would be in direct contravention and violation of the undertakings given by the Reserve Bank at the time of Partition. In a separate memorandum, Pakistan's Finance Secretary demanded that the Bank should transfer Rs 550 million of the cash balance to the account of Pakistan Government; otherwise the Reserve Bank should not allow the Government of India to operate their account without the Pakistan Government's consent.
Emergency meetings of the Central Board of the Reserve Bank were convened on January 14 and 15, 1948, to consider these issues. In the meeting held on January 15, 1948 Nazir Ahmed Khan moved a resolution seconded by Sir Syed Maratib Ali, containing the following proposals:- (i) the due share of Pakistan Government in the cash balance having been determined at Rs 750 million, a sum of Rs 550 million should be credited to the Pakistan Government's account in addition to Rs 200 million already credited; (ii) in regard to ways and means advances, the Bank should abide by the decision of Partition Council viz, ways and means advances should be given to Pakistan without any limit so long as notes were available in the Banking Department of the Bank; and (iii) there should be no limit in respect of expansion of currency against Pakistan Government securities after March 31, 1948, when Pakistan notes would begin to be issued and expansion would be effected through Pakistan notes. The resolution was put to vote and lost, the voting being nine against the two in favour with one abstention.
After giving in to India's recalcitrant attitude under duress, a position to which Pakistan had been driven by lack of control over its resources and with no alternative sources to rely upon, it could only express its resentment in the form of a protest lodged with the Reserve Bank of India by Pakistan's Finance Secretary. The Pakistan Government finds it difficult to believe that a responsible institution like Reserve Bank of India would wish to risk its reputation for fair dealing were it not for the interference of India Government who are determined to strangle Pakistan financially and economically.
Meanwhile, the Provincial Governments of Pakistan had to obtain advances from certain Indian commercial banks to meet their liabilities, which adopted an ordinary banker's attitude dealing with an untrustworthy customer in demanding repayment. Following the observance of a fast unto death by Mahatama Gandhi on the issue of release of cash balance and other matters, the Indian Government announced on January 15, 1948 their decision to implement immediately the agreement on cash balance.
Floatation of Loans: After transfer of cash balance, the Finance Secretary of Pakistan informed the Reserve Bank, the Government's decision to float simultaneously three loans; short, medium and long-term. The Bank was asked to make arrangements for receiving subscriptions towards these loans at all of its offices in India and Pakistan as well as at the offices of Imperial Bank in Pakistan and India, in addition to receiving such subscriptions at Treasuries in Pakistan.
The Bank was further asked to make arrangement at its and Imperial Bank branches in Pakistan and Treasuries in Pakistan for the issue of 1? per cent tax-free Bearer Bonds, which the Pakistan Government proposed to issue separately soon thereafter. The Finance Secretary also enquired whether the Bank would be prepared to take over from the Government of Pakistan at current market rates, Government of India securities which they proposed to acquire from Provincial Governments, semi-Government bodies and institutions in Pakistan in lieu of their own securities. The Bank considered it advisable to refer these matters to the Government of India.
Termination of the RBI's Role in Pakistan: The attitude of the Reserve Bank towards the vital interest of Pakistan seriously strained the relationship between the Bank and Government of Pakistan.9 The Government of Pakistan, therefore, considered it in the best interest of the country to relieve the Bank of its responsibilities in Pakistan as early as possible. Exploratory talks were held in this connection between the Governor of Reserve Bank of India and the High Commissioner for Pakistan in India, Zahid Husain, who later became the first Governor of the State Bank.
In the wake of these parleys, the Government of Pakistan sent a communication to the Bank in February, 1948, containing the Pakistan Government's decision to take over the responsibility of currency and banking arrangements in Pakistan from the Reserve Bank of India with effect from April 1, 1948. Tripartite talks were held thereafter among the representatives of Governments of India, Pakistan and the Reserve Bank in Bombay between March 10 and March 13, 1948, and were later continued in Delhi.
During these parleys, it was agreed that Pakistan would terminate its monetary arrangements with Reserve Bank with effect from June 30, 1948. This and other decisions reached were embodied in the Pakistan Monetary System and Reserve Bank (Amendment) Order issued on March 31, 1948.
THE FORMATION OF THE STATE BANK OF PAKISTAN:
With no signs of relaxation in the continuing state of tension in Indo-Pakistan relations, Pakistan was compelled by sheer force of circumstances on setting up a central bank or monetary authority of its own earlier than visualised. Non-availability and/or inadequacy of trained personnel was the main obstacle in the way of its establishment. In the face of the difficulties the country was encountering in the realm of finance and banking and the economic conditions in general, the Secretary of Finance to the Government of Pakistan advocated a policy of hastening slowly rather rushing hastily into a field new to its experience. John Turner wrote:
I am taking the line that we should start with a Currency Controller's Office based on the Issue Departments of the Reserve Bank of India at Karachi, Lahore and Dacca, (which will be taken over), other government business being done by the Imperial Bank of India. Turner's views could, however, find no favour with the authorities or evoke a favourable response from the public impatient for a rapid change of status quo after independence. In its judgement the fulfilment of popular aspirations was not possible unless the country had its own separate and distinct financial and banking institutions, essential for ensuring better standards of living for its people.
Legislative Spadework: The Finance Secretary had in December, 1947 submitted an outline of the law to the Finance Minister, Ghulam Mohammed to serve as a basis for discussion. It was proposed that the entire share capital of the Bank be subscribed by the Government. Its amount was expected to be large enough to command popular prestige.
While no specific qualifications were prescribed for the offices of the Governor and Deputy Governor except that the first incumbents of the posts were to be of British origin and that they were eligible to hold office till the age of 75. No age restrictions and qualification requirements were laid down for the Directors. The only sterling securities held by the Reserve Bank were to provide cover for the note issue. Turner who had already expressed grave doubts about the soundness of the proposal in his communication to the Bank of England reiterated his skepticism:
It would be a fatal attempt, (he observed) to start a 'Reserve Bank' without adequate staff. ... He had also stated that he did not have much time to consult others in drafting the framework of the central banking law for Pakistan, although it was a question on which opinion of many people ought to have been sought.
Mumtaz Hasan of Ministry of Finance who earlier had his training in Reserve Bank of India and Bank of England was associated with the redrafting assignment at the instance of the Minister of Finance. A copy of the Turner's draft was sent by him to the Deputy Economic Advisor, Dr Anwar Iqbal Qureshi.
In his comments the Deputy Economic Advisor disapproved the ideas in the draft and stressed the need for eliciting expert opinion, which the author of the original draft had himself admitted was necessary. The draft in its final form could be presented to the Constituent Assembly only after it had been thoroughly examined and scrutinised by the Ministry of Finance and Law Division. Mumtaz Hasan was in agreement with Dr Qureshi.
The Finance Minister subsequently decided to appoint a committee of non-officials to recommend the lines on which the future Reserve Bank of Pakistan was to be constituted, empowering it to elect its own chairman. The Committee was composed of eleven members, four from East Bengal, three from West Punjab, three from Sind including two from Karachi and one from N.W.F.P.
The names of the members appointed on the Committee were: Ahmad Ispahani, Sir Adamjee Haji Dawood, Abdul Matin Chaudhry, Dr A.M. Malik, Dewan Bahadur S.P. Singha, Professor Mohammad Hasan, Khan Sahib Muhammad Bashir, Mohammad Ali Habib, Hoshang Dinshaw, Professor H.R. Batheya and Shaikh Allah Bux.
The first meeting of the Committee held on January 26, 1948 elected Dewan Bahadur S.P. Singha as its Chairman and held sessions on January 26 and 27, 1948 to finalise its recommendations. The agenda of the meeting was not circulated among the members along with the invitation.