FM says all options on the table for utilizing RBI’s ₹1.76-trillion funds


New Delhi: Finance minister Nirmala Sitharaman on Tuesday indicated that all options are open for the government to utilize the Reserve Bank of India’s 1.76 trillion largesse.

Accepting the recommendations of the Bimal Jalan committee, the central board of RBI on Monday decided to transfer 1.23 trillion of its surplus and 52,637 crore of excess provisions, in a relief for the government struggling to meet revenue targets in a slowing economy.

“I can’t talk about how to utilize it now. We will take a call and then let you know,” Sitharaman said in response to a question at a press conference in Pune after attending an interaction with traders, entrepreneurs and industry experts.

The additional amount of around 58,000 crore that the government will receive this year, above its budgeted 90,000 crore as transfers from the central bank, could be used either to provide fiscal stimulus to revive a sagging economy, reduce off-balance sheet borrowings or meet the expected shortfall in revenue collections.

Sitharaman on Friday announced a slew of measures to boost confidence in the economy, but stopped short of announcing any fiscal stimulus. However, the minister said she may announce more measures this week, including a package for homebuyers.

On questions being raised about the large transfer of surplus to the government, Sitharaman said the Jalan committee had eminent experts and was constituted by RBI itself and not the government.

“They have had several sittings and have come out with a formula based on which the amount has been arrived at. Any suggestion about the credibility of the RBI, therefore, seems a bit outlandish. They (the committee members) themselves (on Monday) have given an explanation that financial stability, surplus to meet any emergency and contingency have all been factored in by the committee while arriving at the formula,” she added.

(Photo: Paras Jain/Mint)
The surplus transfer also created a political row, with the Congress attacking the government on the issue and Sitharaman hitting back that the party’s previous “chor” (thief) jibe had backfired.

Indira Rajaraman, an economist and former member of the RBI board, said about 1 trillion surplus transfer by RBI this year, which amounts to 0.5% of GDP, is a very large transfer.

“I have no quarrel with the calculations of the report. However, if the expectation going forward from the government remains that non-tax revenue worth 0.5% of GDP will come from the RBI every year, that would amount to fiscal dependence on the RBI, which is not a good thing,” she added.

Madhavi Arora, lead economist at Edelweiss Securities, said the money could be used to bridge the expected tax shortfalls or boost sector-specific expenditure.

“That said, this bonanza appears one-time and does not necessarily bode well in the medium term from a fiscal standpoint. With the expansion of RBI’s balance sheet ahead, the maintenance of contingent risk buffer at 5.5% of RBI balance sheet, as accepted by the RBI board, would mean RBI’s net income will have to be adjusted accordingly before transferring as a dividend to the government, implying possibly lower dividends for the government,” she added.


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