oppn parties Interim Dividend By RBI: Permanent Solution Needed

News Snippets

  • In a first, the Supreme Court recognizes marital rape, although for the limited purpose of allowing married women the right of abortion up to 24 weeks if they conceived as a result of forced sex by their husbands
  • Air India cuts discounts on base fare to students and senior citizens from 50% to 25%
  • Mallikarjun Kharge and Digvijay Singh are being touted as frontrunners to take on Shashi Tharoor in the elections for the post of Congress president
  • Sonia Gandhi will decide who will be Rajasthan CM if she feels there is a need to change guard after the near-rebellion by MLAs in the state
  • Ashok Gehlot bowed out of the race for being Congress president after meeting Sonia Gandhi
  • India has moved to the 40th spot in the innovation index, up 6 spots from last year
  • DGGI has alleged that top insurance companies, banks and NBFCs has committed a fraud of Rs 800cr by claiming input tax credit without underlying supplies
  • The Centre will borrow Rs 10000cr less than planned earlier due to good revenue collections
  • At $23.9bn, India's current account deficit widened to 2.8% in Q1, the worst in four years
  • Stocks continue to flounder on Thursday: Sensex sheds 188 points to 56409 and Nifty 40 points to 16818
  • The 36th National Games were declared open on Thusrday by PM Modi in front of a record crowd in Motera near Ahmedabad
  • Jasprit Bumrah most likely to miss T20 World Cup due to recurrence of back injury
  • PFI's political wing, the SDPI is on EC radar and action will follow soon if discrepancies are detected
  • Ashok Gehlot to meet Sonia Gandhi today, says all issues will be sorted out soon
  • Referring to the PFI ban, most Muslim organizations ask the government to take similar action against right wings organizations like the RSS, Bajrang Dal, VHP and the like
In a landmark order, Supreme Court rules that all women, married or unmarried, are entitled to safe and legal abortion up to 24 weeks of pregnancy as per the MTP Act
oppn parties
Interim Dividend By RBI: Permanent Solution Needed

By Sunil Garodia
First publised on 2019-02-22 08:45:45

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
The government has had its way. The RBI is to transfer Rs 24000cr as interim dividend for 2018-19. This is the second year in succession that the central bank is doing so. Last year the amount was just Rs 10000cr. But this year, a cash-strapped government juggling to keep its fiscal deficit target in check in the face of the demands of an election year was eyeing the ample reserves of the RBI. One thinks that it has adopted the interim dividend route to mute the criticism that surfaced when rumours were doing the round that the government wanted the RBI to part with a substantial sum of the huge reserves it has accumulated over the years.

If one sees from a purely commercial and corporate point of view, there is nothing wrong in shareholders demanding an enhanced dividend or even an interim dividend on their investment. Companies usually do this. There is also no harm in asking for unutilized reserves to be transferred. This is usually done by issuing bonus shares in the corporate world. The Centre, as the sole shareholder, is also specially empowered to give directions to the central bank vide Section 7 of the RBI Act.

But the role and function of the central bank in the economy are vastly different from that of a company in the marketplace. There are many areas where the central bank has to intervene, either to shore up the rupee or to calm the financial markets in turbulent times. With a global economic slowdown on the cards, the RBI needs the reserves. It also matters in global ratings – a central bank with ample reserves to tide over difficult times is likely to get better ratings. Finally, it never pays to undermine a financial regulatory institution for political gains. Instead of eyeing the RBI reserves, the government must either curb its financial profligacy or find other ways to raise revenue.

One feels that the government must do away with these knee-jerk responses. It must sit down with the RBI, make necessary changes in law and work out a permanent solution for transfers of dividend. Former RBI governor Bimal Jalan is heading a committee that is looking into the economic capital framework for the RBI. This committee is expected to institutionalize a system for periodic transfer of RBI surpluses to the government. The committee will definitely study the MoU signed by the Bank of England with the UK Treasury whereby the central bank will transfer 50 percent of its profits each year to the government in two installments, one as an interim dividend and the other as final. India needs a similar institutionalized system to do away with the arbitrariness and improve relations between the government and the RBI.