Table of Contents
RBI VS GOVERNMENT
RBI’S ASSETS AND RESERVES
The total assets of the RBI stand at a bit more than Rs 36 lakh crore (Rs 36,17,594 crore). For Financial Year 2017-18. It is distributed among – 1. Gold, Banknotes and Coins kept in the vaults of the RBI. 2. The Foreign Currency Assets 3. Government Bonds, Treasury Bills and Special Oil Bonds 4. Loans and advances to central and state governments 5. Loans and advances to commercial, co-operative banks, NABARD and others
WHAT IS SURPLUS TRANSFER
- As the term suggests, the process involves the RBI transferring a share of its profits to the central government. In accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934, RBI transfers the excess of income over expenditure – to the government at the end of each fiscal year.
- The RBI has decided to transfer an amount of Rs 50,000 crore as surplus transfer. The government however, wants it to transfer the entire surplus from the financial year 2017-18 to the government
NOTES
- Currently, the RBI’s reserves stand at Rs 9.7 lakh crore in fiscal year FY18. (We are not talking about assets) Out of the Rs 9.7 lakh crore that the RBI can shell out, just under Rs 2.55 lakh crore is part of the contingency fund which is allocated to guard against unforeseen losses RBI’s buffer includes Rs 6.91 lakh crore in form of currency and gold revaluation Contingency Fund, Asset Development Fund, Currency and Gold revaluation account
THE CONTROVERSY
The RBI fund the surplus funds to Government as a form of dividend. The question is how much should that dividend be. Usha Thorat committee (2004) – This Committee said RBI. This Committee said the total reserves should be around 18% of the total assets. Currently it is 28% Another committee under Y.H. Malegam which said the existing reserves were in excess of the needed buffer and hence no transfers from the profits were necessary. The Entire surplus should be sent to the Government
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The CGRA was 21.81% of total assets and the contingency reserve was 8.44%. The corresponding numbers now (2017-18) are 19.11% and 6.41% respectively. RBI believes that the buffer is now inadequate
NOTES
For now, it seems RBI is not going to budge to the government’s demand of Rs 3.6 lakh crore. But if it eventually has to, it would mean exhausting the contingency fund completely and further eating into the gold and currency assets. If that seems outrageous, there lies just one way out. Raghuram Rajan put it succinctly: “To pay an additional dividend to the government, the RBI has to create additional permanent reserves, i.e., print more money”.
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