The Reserve Bank of India (RBI) has transferred a little over Rs 1.76 lakh crore to the Narendra Modi government, in a move that give greater fiscal leeway to the Centre and bring to an end the contentious debate over the central bank’s ‘excess reserves’.
Daily Current Affairs Quiz 2019
In doing so, the RBI’s central board has agreed to accept all the recommendations of the Bimal Jalan committee, which was set up in December 2018 to re-evaluate the central bank’s economic capital framework (ECF).
Out of the Rs 1.76 lakh crore, of which Rs 28,000 crore has already been transferred as an interim dividend, a little over Rs 52,000 crore is what the committee has defined as “excess provisions’ or excess capital.
“The Central Board… today decided to transfer a sum of Rs 1,76,051 crore to the Government of India (Government) comprising of Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the meeting of the Central Board today,” a RBI press release noted.
Every year, the RBI makes a ‘surplus transfer’ to the Centre, typically defined as excess income over expenditure. In the last six years, this transfer has ranged between Rs 30,000 crore to Rs 65,000 crore.
The problem revolves around the fact that the RBI doesn’t transfer all of its ‘excess income’, or profit, to the government. It holds back some of it as a safeguard for a rainy day and calls that its ‘reserves’.
Over the last year, the central bank and the Centre, especially under former RBI governor Urjit Patel’s tenure, have bickered over whether the RBI could hand over a greater portion of its ‘excess reserves’.
These reserves – which are categorised into different buckets ( currency and gold revaluation account, investment revaluation account, asset development fund and contingency fund) – amounted to almost Rs 9.6 lakh crore for FY’18. Two of these buckets are bigger than the others: the RBI’s contingency fund is at Rs 2.5 lakh crore, while the currency and gold revaluation reserve is at Rs 6.91 lakh crore.
In the last year, media reports had indicated that the Modi government wanted up to Rs 3 lakh crore of the central bank’s reserves. This does not appear to have happened.
