No Proposal From Government Seeking RBI's Surplus Reserves: Top Official

Cornelia Mascio
Novembre 10, 2018

"The government stares at a fiscal-deficit crisis".

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.

The government also wants the RBI to be lenient with capital adequacy norms, the official said, adding those norms for lenders are very stringent compared with global standards.

In what seemed to be a softening of its stance by the government in its tussle with the Reserve Bank of India (RBI), Economic Affairs Secretary Subhash Garg on Friday said there was no proposal by the Centre to ask the central bank to transfer any specific amount.

The RBI distributes a part of the profits it generates as dividends to the government while transferring the rest to its reserves. The rift has widened sharply in the past few weeks and will be taken up at the RBI's forthcoming board meeting on November 19. "Finding all avenues closed, in desperation, the government has demanded Rs 1 lakh crore from the reserves of RBI", the former Union finance minister said at a press conference in Kolkata.

India's government is asking the central bank to hand over a part of its surplus reserves to put that to more productive use, an official told reporters in New Delhi. Government's FD in FY 2013-14 was 5.1%. From 2014-15 onwards, the government brought this down substantially.

According to the RBI annual report, surplus reserves as on June 30, 2018 were about ₹9.63-lakh crore. "The government has actually foregone 70,000 crore of budgeted market borrowing this year", he said. This includes balances in Contingency Fund, Asset Development Fund (ADF), Currency and Gold Revaluation Account (CGRA), Foreign Exchange Forward Contracts Valuation Account (FCVA) and Investment Revaluation Account Rupee Securities (IRA-RS), besides some minor accounts head. "It weakens the balance sheet of the central bank and provides a 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".

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