RBI board is also expected to discuss the loan defaulters’ list that has not been made public.
New Delhi: After the recent spat between the government and the Reserve Bank of India (RBI), all eyes are on the scheduled meeting of the central bank’s board on 19 November.
This meeting will not be an ordinary one, as the RBI is set to take a few critical decisions, including a call on whether or not to increase the chunk of the dividend it pays to the government. The government has sought a larger share of dividend from the central bank to meet its fiscal deficit target.
“In all probability, the RBI will say no, though there could be some pressure on the central bank to increase the dividend,” an RBI source said.
According to a section of RBI employees, the government has sought Rs 3.6 lakh crore from RBI’s surplus pool, which it is not ready to part with.
The RBI paid a dividend of Rs 50,000 crore to the government for the period 1 July 2017-30 June 2018 — the highest-ever surplus transferred since 2015-16.
Sources said the Finance Ministry is unlikely to make any immediate demand on this.
“We do not want to rake up this issue again…but at the same time, the money that RBI has is for public use,” a senior official who did not wish to be identified told ThePrint. The money could have been used for bank recapitalisation, the official said.
Besides, sources said the board could also discuss the issue of the loan defaulters’ list, which has not been made public.
Also read: Undermining autonomy of RBI is the opposite of Modi’s promise of good governance
Why has govt demanded higher dividend?
Sources said former Chief Economic Advisor Arvind Subramanian, in his Economic Surveys of 2015-16 and 2016-17, had made a case for transferring a larger share of RBI’s excess capital to the government, which in turn would allow the government to redeploy this amount in a more productive way.
The survey pointed out that RBI is one of the most highly capitalised central banks in the world.
“There is no particular reason why this extra capital should be kept with the RBI. Even at current levels, the RBI is already exceptionally highly capitalised,” the FY17 Economic Survey said, adding that the amount could be redirected towards recapitalising the cash-starved public sector banks.
Also read: Urjit Patel won the first round in RBI vs Centre, but the war isn’t over
However, Subramanian in his survey had also underlined the need to maintain the autonomy of the RBI, while transferring a larger share of the surplus reserves.
The RBI’s reserves – like what many faithful Indian wives keep hidden from their husbands – are a shade below ten trillion. Whether these are excessive or prudent, considering how India has been running a combined fiscal deficit of close to ten per cent of GDP ( with honest accounting ) between Centre, states, local authorities, PSUs, is a matter for reasoned debate. However, whether it is the RBI, ONGC – our favourite Jersey cow – or LIC, which is actually a trustee for its policy holders, not the owner, outright, of its vast store of liquidity, the simple fact is that these accumulations have been made over seventy years. Not meant to be flared, like natural gas, over the five year term of a government. Another ten trillion plus is the windfall from lower oil prices which central / state governments have fully absorbed. Where this money has been spent remains an enduring mystery, for it is not represented by creation of durable assets. Revenue expenditure, the cost of keeping the vast structures of routine governance funded and provided for. Each government is a trustee of the public purse. As it is, the fiscal deficit represents the present preempting the future. If, added to that, generations of savings are consumed in a few years, that would be gross profligacy. 2. The RBI will not yield. The government has made it known that it will not detain the Governor if he wishes to move on. This story will not have a happy ending.
This government has a habit of HEARTLESSLY wasting the money of our poor country. A huge amount, nearly 36000 crores was “gifted” to Rafale company, God alone knows why. Modi government has been refusing to tell us why. Statue of Sardar Patel has been built at the cost of 3000 crores. NOT ONE tourist will go there because it’s not easy to go there. And if some freak somehow manages to, there’s not EVEN ONE TREE for shade on what looks like a one kilometre walk up to the foot of the statute. Have you tried to walk one kilometre in the sun on a road which has no trees? Try it, and you will understand the MONUMENTAL FOOLISHNESS of whoever has planned that project. Nor can you see any saplings planted anywhere along the route. Ideally speaking, FULLY GROWN trees should have been transported there and planted, like they do in gulf countries. The whole thing was okayed by someone, of course, if not by Mr Modi himself. But if he is so gung-ho on the project, he must own up its “perfect” design. More statues are lined up to be built all over the country by these BJP smart alecs, each costing many thousands of crores. God save this country.
RBI should plainly refuse to give a BLANK CHEQUE to Modi government to squander money on its CRIMINAL WHIMS, or its criminal “non-knowledge of economics”. May God give strength, AT LAST, to the RBI governor, and may God have mercy on this poor country.