Top fi­nance official’s tweet hints Cen­tre, RBI set for fresh tus­sle

Dis­cus­sions on with RBI to de­cide the ap­pro­pri­ate eco­nomic cap­i­tal frame­work of the cen­tral bank, tweets eco­nomic af­fairs sec­re­tary

Hindustan Times (Patiala) - - Front page - Re­mya Nair re­mya.n@livemint.com n

The stage is set for an­other show­down be­tween the Re­serve Bank of In­dia (RBI) and the Union govern­ment with the Cen­tre stick­ing to its ground on Fri­day.

Dis­cus­sions are un­der­way with RBI to de­cide the ap­pro­pri­ate eco­nomic cap­i­tal frame­work of the cen­tral bank, Sub­hash Chan­dra Garg, sec­re­tary of the depart­ment of eco­nomic af­fairs, said on Twit­ter.

The state­ment comes at a time when the govern­ment and RBI are at log­ger­heads over a range of is­sues, in­clud­ing norms re­gard­ing weak banks, the liq­uid­ity prob­lem faced by non­bank­ing fi­nance com­pa­nies (NBFCs), as well as pres­sures on the cen­tral bank to trans­fer more of its sur­plus to the govern­ment.

The meet­ing of the cen­tral board of RBI on November 19 is likely to be stormy .

The stage is set for an­other show­down be­tween the Re­serve Bank of In­dia (RBI) and the Union govern­ment with the Cen­tre stick­ing to its ground on Fri­day.

Dis­cus­sions are un­der­way with RBI to de­cide the ap­pro­pri­ate eco­nomic cap­i­tal frame­work of the cen­tral bank, Sub­hash Chan­dra Garg, sec­re­tary of the depart­ment of eco­nomic af­fairs, said on Twit­ter.

The state­ment comes at a time when the govern­ment and RBI are at log­ger­heads over a range of is­sues, in­clud­ing norms re­gard­ing weak banks, the liq­uid­ity prob­lem faced by non-bank­ing fi­nance com­pa­nies (NBFCs), as well as pres­sures on the cen­tral bank to trans­fer more of its sur­plus to the govern­ment.

The meet­ing of the cen­tral board of RBI on November 19 is likely to be stormy with the govern­ment de­ter­mined to take up th­ese is­sues and press for a de­ci­sive out­come.

“The govern­ment’s fiscal math is com­pletely on track. There is no pro­posal to ask RBI to trans­fer ₹3.6 (lakh crore) or ₹1 lakh crore, as spec­u­lated .... Only pro­posal un­der dis­cus­sion is to fix ap­pro­pri­ate eco­nomic cap­i­tal frame­work of RBI,” Garg tweeted.

Eco­nomic cap­i­tal frame­work refers to the cap­i­tal re­quired by the cen­tral bank while taking into ac­count dif­fer­ent risks. Once this is fi­nal­ized, ex­cess re­serves could be trans­ferred to the govern­ment, pro­vid­ing the lat­ter with a fiscal cush­ion.

In a speech last month, RBI deputy gov­er­nor Vi­ral Acharya listed chal­lenges to the in­de­pen­dence of RBI and said: “Hav­ing ad­e­quate re­serves to bear any losses that arise from cen­tral bank op­er­a­tions and hav­ing ap­pro­pri­ate rules to al­lo­cate prof­its (in­clud­ing rules that gov­ern the ac­cu­mu­la­tion of cap­i­tal and re­serves) is con­sid­ered an im­por­tant part of cen­tral bank’s in­de­pen­dence from the govern­ment. A thorny on­go­ing is­sue on this front has been that of the rules for sur­plus trans­fer from RBI to the govern­ment..”

Fri­day’s state­ment, said econ­o­mist and Mint colum­nist Indira Ra­jara­man, “seems to in­di­cate that the govern­ment is look­ing to al­lay mar­ket fears. It seems the govern­ment wants to con­vey that it does not plan to wipe out RBI’s cap­i­tal but is only look­ing for a rea­son­able share— any ex­cess sur­plus that can be trans­ferred.”

“In prin­ci­ple, RBI should have on hand some in­ter­nally worked out cal­cu­la­tions of the op­ti­mal level of the three kinds of re­serves in the RBI bal­ance sheet,” she said.

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 as­se­tre­lated costs, and a con­tin­gency re­serve to take care of any un­fore­seen emer­gen­cies.

As of June 2018, the to­tal amount in th­ese three types of re­serves ex­ceeded ₹9 lakh crore with more than ₹6.9 lakh crore in valu­a­tion re­serves, the Re­serve Bank of In­dia’s an­nual ac­counts show.

Govt’s fiscal math is com­pletely on track. There is no pro­posal to ask RBI to trans­fer ₹3.6 (lakh crore) or ₹1 lakh crore, as spec­u­lated SUB­HASH C GARG, eco­nomic af­fairs sec­re­tary

REUTERS

The govern­ment and RBI are at log­ger­heads over a range of is­sues, in­clud­ing norms re­gard­ing weak banks and the liq­uid­ity prob­lem faced by NBFCs

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