RBI SURPLUS TRANSFER TO THE GOVERNMENT
A Bimal Jalan led committee recommended for transferring the surplus left with RBI every fiscal year to the government, is it correct to do?
On 26th August 2019, Reserve Bank of India (RBI) approved Bimal Jalan-led committee report, which recommended transferring RBI’s excess capital over the next 3 to 5 years. So this year, RBI transferred Rs. 1.76 Lakh crore to the government. Generally, RBI keeps some money for its regular operations and a large reserve of cash to save the economy if the situation of economic instability arises. Every year, at the end of the August, RBI transfers its surplus earnings to the government after finalizing its accounts. But after the published Bimal Jalan Report, RBI now had to transfer the surplus funds left at end of every fiscal to the Government reserves.
Why the Sudden Change?
In 2018, the central government asked the Reserve Bank of India to transfer a part of its reserves to the government. The government stated that the funds with RBI are beyond the required amount, and this money can be put to better use instead of keeping them idle. But RBI did not accept the proposal. RBI feared that transferring some of its reserves will make it helpless at the time of economic crisis. That resulted in the conflict between RBI and government. To come to a balanced decision, Bimal Jalan’s committee was appointed, which is headed by Bimal Jalan, a former RBI governor.
Bimal Jalan’s committee thoroughly analyzed various standards and submitted a report, which is accepted by both the parties – RBI & the government. On August 26th, RBI approved the report and transferred 1.76 Lakh crore rupees to the central government.
Will it do any good to the Economy?
- At present, India is facing an economic slowdown. In the April-June quarter GDP growth rate was just 5%. This is the low point in the 6 years. So, at this time, RBI’s surplus transfer is a boon to the government.
- If this money is spent on the current expenditures, it’ll help in maintaining the fiscal deficit target of 3.3%. But, that may not be able to bring the economy to a normal state. So, this money is better put to use to bring structural reforms and to invest in income-generating sectors. This is really needed because at present there is a lack of private investment.
- RBI’s surplus transfer bought the government some time. In this time, the government needs to take steps on increasing tax revenues and other revenue sources. GST collections are way less than the expected amount. There is a need to take steps on GST simplification.
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Source - Edumyra
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