Thursday, 15 November, 2018

Modi govt trying to capture RBI could be catastrophic: Chidambaram

P Chidambaram Congress leader P Chidambaram. File
Jean Garcia | 10 November, 2018, 08:34

Arvind Subramanian, former chief economic adviser to the government, had argued in his Economic Surveys that the central bank was sitting on too much capital and "assuming that the RBI returns four trillion rupees of capital to the government" it could be put to productive use.

Top sources have confirmed to India Today that the government - through its representatives on the RBI board which has Governor Urijit Patel and four deputy governors as full time directors - will press for "fixing the norms for surplus reserve" maintained by the RBI.

Media reports had said that the government was insisting on a payout from the central bank's reserves to tide over a tight fiscal situation ahead of state polls and general elections in 2019.

With the government and the Reserve Bank of India being at loggerheads over issues such as allocation of the central bank's capital, former RBI board member YH Malegam said there is no provision in the RBI Act that says the central bank's reserves can be paid to the government. "There is no proposal to ask RBI to transfer 3.6 lakh crore or 1 lakh crore, as speculated", he tweeted.

The RBI board is likely to discuss capital framework and other issues at its meeting scheduled for November 19.

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"Government's FD (fiscal deficit) in FY 2013-14 was 5.1%".

There is no proposal from the government to ask the central bank to transfer its surplus reserves, said Subhash Chandra Garg, economic affairs secretary in the finance ministry, in a tweet on Friday. "We will end the FY 2018-'19 with FD of 3.3%. It seems the government wants to convey that it does not plan to wipe out RBI's capital but is only looking for a reasonable share-any excess surplus that can be transferred".

"The day of reckoning is November 19 when the RBI board is scheduled to meet".

However, the government clarified earlier today that the above-mentioned reports were a product of speculation and that it had no such demand from the RBI. "It weakens the balance sheet of the central bank and provides the wrong incentive to the government, as it weakens the incentive to control the rapid expansion of spending and to promote some consolidation of fiscal accounts in 2010".

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