oppn parties The Government And The RBI: Striking A Prudent Balance

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
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The Government And The RBI: Striking A Prudent Balance

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

The government has had its way with the RBI. The central bank has transferred a record sum of Rs 1.76 lakh crore to the government comprising Rs 1.23 lakh crore as the dividend for the year 2018-19 and the balance after revising the Economic Capital Framework (ECF) to lower the optimum reserves required to be maintained by the RBI. This has ensured that the government will now have the funds required to make investments in infrastructure and other projects and schemes and kick start the moribund economy. The need was to strike a prudent balance between the government's need for funds in the present depressed economic conditions and the optimum requirement of reserves to be kept with the RBI in case the situation worsens and it has to intervene in the financial markets. It seems that the government, the RBI and the Bimal Jalan committee have worked out an excellent formula.

It was widely expected that the RBI would transfer around Rs 70000 crores from the profits earned this fiscal to the government and transfer the rest to the reserve fund. But it ended up transferring the whole of the profit earned this year to the government. This happened because the government managed to convince the Bimal Jalan committee of the need for a downward revision in the ECF. It adopted a new methodology to show the committee that the RBI was covered up to 99.5% of market risks against the global standard of 90% by most central banks. Once the committee was convinced and the RBI's Central Board, despite reservations by some members, adopted the committee's recommendation in full, the ECF was adjusted to release Rs 52,637 crore to the government and it also obviated the need to transfer any amount from this years' dividend to the reserve fund.

Readers will remember that the former RBI governor Urijit Patel had ostensibly resigned from his post mainly because he could not agree to the transfer of additional funds to the government from the surplus reserves held by the RBI. His argument was that the bank needs the funds to intervene in the market in times of global crisis. Readers will also remember that India had to pledge its gold reserves and physically ship the same to the Bank of England to raise funds to prevent a payments crisis in the 1990s. But the situation is not as bleak as it was then and the RBI held a reserve of Rs 9.6 lakh crore at the end of FY 2018. India has foreign exchange reserves of $430.5 billion and is comfortable in the balance of payments also. Given the above indicators, the Bimal Jalan committee was right in accepting the arguments put forward by the government and the RBI has acted correctly in releasing additional funds in times of economic crisis.