Law doesn't allow transfer of RBI reserves to govt: YH Malegam

Lloyd Doyle
November 10, 2018

Chidambaram alleged that the government had packed the central bank's board with handpicked nominees and was making every attempt to push through its proposals at the RBI board meeting on 19 November.

RBI deputy governor Viral Acharya had said in his speech last month.

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.

"This government (NDA) not only wants the profit but also Rs 1 lakh crore from the reserve of RBI".

Economic capital framework refers to the capital required by the central bank while taking into account different risks. "No government in the past had asked for the reserve in RBI", Chidambaram said in Guwahati on Friday.

The meeting of the central board of the RBI on 19 November is likely to be stormy with the government determined to take up these issues and press for a decisive outcome. "Government's fiscal deficit in FY 2013-14 was 5.1%".

Garg added that the only proposal concerning the reserves that the government was discussing was to fix the appropriate economic capital framework of the RBI. From 2014-15 onwards, the government brought this down substantially. "Government has actually foregone Rs 70,000 crore of budgeted market borrowing this year", Garg said.

According to the RBI annual report, surplus reserves as on June 30, 2018 were about ₹9.63-lakh crore.

These are valuation reserves for dealing with volatility in foreign exchange holdings and government securities, asset development reserves for taking care of depreciation and other asset-related costs, and a contingency reserve to take care of any unforeseen emergencies. "There need to be some norms for how much the RBI can keep", a top Finance Ministry official told BusinessLine. "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".

Other reports by Iphone Fresh

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