New Delhi: Amid a face-off with the RBI, the government on Friday said it is discussing an “appropriate” size of capital reserves that the central bank must maintain but denied seeking a massive capital transfer from the Reserve Bank of India (RBI).
Economic affairs secretary Subhash Chandra Garg said that the government has not asked the RBI to transfer Rs 3.6 lakh crore to it.
Confident of meeting fiscal deficit target, Mr Garg tweeted, “Lot of misinformed speculation is going around in media. The government’s fiscal math is completely on track. There is no proposal to ask the RBI to transfer Rs 3.6 or 1 lakh crore, as speculated.”
On the fiscal road map, he said, the government will stick to the fiscal deficit target of 3.3 per cent for the current financial year.
Mr Garg said that the only proposal concerning the reserves that the government is discussing is to fix the appropriate economic capital framework of the RBI.
The RBI has a massive Rs 9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund — an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recent weeks.
The Congress had alleged that the money was being sought by the BJP-led government allegedly to dole out “freebies” ahead of the 2019 parliamentary election and had called it “the great Indian robbery”.
Former finance minister P. Chidambaram on Friday warned the NDA government against laying its hands on RBI reserves, saying it will have “catastrophic” economic consequences for the country.
He said that the minutes of an RBI meeting on November 7, 2016, is a “comprehensive repudiation” of the government’s “justification” for demonetisation.
Talking to reporters in Guwahati, the senior Congress leader said it is clear that the BJP has no understanding of the role of the central bank and no respect for the independence of its governor.
Former chief economic adviser Arvind Subramanian had in Economic Survey 2016-17 said that the RBI was already exceptionally highly capitalised and nearly '4 lakh crore of its capital transfer to the government can be used for recapitalising the banks and/or recapitalising a public sector asset rehabilitation agency.
Earlier this year, the RBI decided to pay '50,000 crore as dividend to the government in line with the Union Budget provisions, helping the Centre to stick to its fiscal road map.
The issue of RBI’s capital needs may come up at the next board meeting on November 19.
The RBI and the government have not been on the same page on different issues for some weeks now. The disagreements came out in open when RBI deputy governor Viral Acharya, in a hard-hitting speech, on October 26 said that failure to defend the central bank’s independence would “incur the wrath of the financial markets”.
It later emerged that the government had invoked a never-before-used provision of the law — Section 7 of the RBI Act — to seek from the RBI discussions on easing non-performing asset (NPA) norms so that banks can kick start lending and support growth, and transfer more dividend to boost liquidity.
