FinMin digs in, wants RBI sur­plus norms de­fined

Govt claims it is not seek­ing trans­fer of re­serves as its fis­cal math is on track

The Hindu Business Line - - FRONT PAGE - SHISHIR SINHA PTI

The No­vem­ber 19 board meet­ing of the Re­serve Bank of In­dia will likely see a sharp­en­ing of the stand­off with the Fi­nance Min­istry, with the gov­ern­ment mak­ing clear its in­tent to press for fix­ing norms for the sur­plus re­serves to be main­tained by the cen­tral bank.

“The global norm is to have re­serves of 14 per cent of to­tal as­sets, while at present the RBI has 27 per cent. There need to be some norms for how much the RBI can keep,” a top Fi­nance Min­istry of­fi­cial told Busi­nessLine. This is­sue fig­ured in the re­cent com­mu­ni­ca­tion be­tween the gov­ern­ment and the RBI — and al­though the gov­ern­ment has said it was not ask­ing for a part of the sur­plus re­serve to be trans­ferred to it, the gen­eral feel­ing is that the fix­ing of a norm is the pre­cur­sor to a trans­fer.

Ear­lier in the day, Eco­nomic Af­fairs Sec­re­tary Sub­hash Chan­dra Garg tweeted, “….pro­posal un­der dis­cus­sion is to fix ap­pro­pri­ate eco­nomic cap­i­tal frame­work of RBI.” The phrase ‘ap­pro­pri­ate eco­nomic cap­i­tal frame­work’ is be­ing in­ter­preted to mean ‘de­ter­min­ing the norms for sur­plus re­serve to be main­tained’.

Garg’s tweet came in re­sponse to news re­ports that the gov­ern­ment is ask­ing the RBI to trans­fer a part of its re­serve to main­tain its fis­cal deficit. “Gov­ern­ment’s fis­cal Eco­nomic Af­fairs Sec­re­tary Sub­hash Chan­dra Garg tweeted, “….pro­posal un­der dis­cus­sion is to fix ap­pro­pri­ate eco­nomic cap­i­tal frame­work of RBI.”

math is com­pletely on track. There is no pro­posal to ask RBI to trans­fer ₹3.6 or 1 lakh crore, as spec­u­lated,” he said.

‘Fis­cal deficit un­der con­trol’

He men­tioned that the gov­ern­ment’s fis­cal deficit in fi­nan­cial year 2013-14 was 5.1 per cent. From 2014-15 on­wards, the gov­ern­ment brought this down sub­stan­tially. “We will end FY2018-19 with a fis­cal deficit of 3.3 per cent. The gov­ern­ment has ac­tu­ally fore­gone ₹70,000 crore of bud­geted mar­ket bor­row­ing this year,” he em­pha­sised.

Of­fi­cials in the know said the com­mu­ni­ca­tion be­tween the gov­ern­ment and the RBI did not men­tion any amount to be trans­ferred and only raises the is­sue about norms.

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

The con­tro­versy over the trans­fer of sur­plus re­serves started when RBI Deputy Gover­nor Vi­ral Acharya, in his speech on Oc­to­ber 26, quoted Al­berto Ramos, Ar­gen­tinian an­a­lyst at Gold­man Sachs, as say­ing, “Us­ing cen­tral bank re­serves to pay gov­ern­ment obli­ga­tions is not a pos­i­tive devel­op­ment and the con­cept of ex­cess re­serves is cer­tainly open to de­bate. 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.”

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