oppn parties Interim Dividend By RBI: Permanent Solution Needed

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  • Supreme Court sentences Congress leader Navjot Singh Sidhu to one year rigorous imprisonment in the 1988 road rage case
  • Home Minister Amit Shah says rights should not be demanded before fulfilling responsibilities and that universities are no place to wage ideological battles
  • NIA court convicts JKLF chief Yasin Malik in terror funding case after he pleads guilty of all charges
  • A study backed by PM-EAC has recommended universal basic income and urban job guarantee and greater spend on social sector schemes
  • Supreme Court rules that the decisions of the GST Council are not binding on the Centre and the states, leaving the door open for states to levy further taxes
  • After sustained campaign by BJP MP Arjun Singh, the Centre today withdrew the jute price cap order, industry welcomes move
  • Akasa Air might postpone its July launch due to late arrival of aircrafts
  • Metro Cash & Carry decides to sell Indian operations. All major players, including Reliance retail and Amazon, are likely to bid
  • Local and global cues spook the markets on Friday - Sensex crashes 1416 points to 52792 and Nifty by 430 points to 15809
  • IPL: RCB crushes GT by 8 wickets as Virat Kohli returns to form with a well-made half century
  • Nikhat Zareen is world champion in flyweight category. Wins gold at Women's World Championships at Instanbul
  • Supreme Court uses its special powers under Article 124 to release A G Perarivalan, a Rajiv Gandhi assassination convict
  • Indrani Mukherjea, prime accused in the Sheena Bora murder case, gets bail from Supreme Court after 6.5 years in jail
  • Hardik Patel quits Congress, says top leaders distracted by mobile phones and state leadership busy arranging 'chicken sandwiches' for them
  • Anil Baijal resigns as Lieutenant Governor of Delhi citing "personal reasons"
Nikhat Zareen is crowned world champion in the flyweight (52Kg) category at the Women's World Championships in Istanbul /////// Supreme Court sentences Navjot Singh Sidhu to rigorous imprisonment of one year in the road rage case /////// Sunil Jakhar, who quit the Congress a few days ago, joins the BJP
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.