RBI vs. Finmin: The budget deficit is under control, has not sought to obtain a Rs 3.6 lakh credit from the central bank, says Garg


rbi, reserve bank of IndiaAccording to the annual accounts of RBI as of June 30, 2018, the provident fund and asset development amounted to 2.54 919 crore.

While all eyes are on the November 19 Reserve Bank of India Board of Directors meeting, in which senior management and nominees to the government are about to compete on Many contentious issues, said Friday the Secretary of State for Economic Affairs, Subhash Chandra Garg. Rs 3.6 lakh crore of the central bank to meet its budget requirements. However, he admitted that a proposal was under discussion to set "an appropriate economic capital framework for staples".

"Many uninformed speculations circulate in the media. The government's financial calculations are quite on track. It is not proposed to ask RBI to transfer Rs 3.6 or 1 lakh crore, as speculated, "Garg tweeted.

A request from the Ministry of Finance for the transfer of a large amount as surplus RBI is considered one of the main points of contention between the government and the RBI. The two also have different views on many other issues, including the use by the Ministry of Finance of the powerful Section 7 never used before to open discussions with the RBI and a proposal to ease the framework. strict 'rapid corrective measures' (PCA) to allow weak public sector banks to lend more freely when NBFCs face a liquidity crisis.

Although the RBI has recently accepted some of the government's requirements – it has allowed more bank loans to NBFCs and eased the conditions for Indian companies to borrow from abroad – the most intractable are the issues of capital transfer and the PCA framework.

Even though Garg, even Friday, was confident about the government's budget calculations and reiterated that he would stick to the target of 3.3% of GDP set for the budget deficit for the government. In the current fiscal year, many analysts believe that in many areas of revenue performance is not meeting expectations. the government may need to reduce spending to meet the fiscal goal. In addition, since the demonetization did not yield any benefits to the RBI and therefore to the government, three-quarters believe that the election-related government would be more than happy if the RBI broke the convention allowing it to transfer a higher amount to the government, apart from the profits that he usually transfers.

However, an aggressive government position has placed it in a weak wicket. At a recent conference in Mumbai, RBI deputy governor Viral Acharya not only vigorously defended the government's action, but also credited information suggesting a specific amount requested by the ministry. He referred to an article entitled "Governments set the RBI's excess capital at Rs 3.6 billion and look for it as surplus" by the Cogencis news agency. Acharya quoted recent articles on the subject of former deputy governor Rakesh Mohan, in which he explained why a central bank needed a solid balance sheet to pay for it. all of its critical functions for the economy. "The long-term tax consequences would be the same if the government today issued new securities to finance the expenditures. The raids on the capital of the RBI do not generate any new net income on a net basis over time and provide only an illusion of free money in the short term, "wrote Mohan.

Acharya has also sought to dispel the idea that fears of central bank losses are illusory. According to the Bank for International Settlements (BIS), 43 out of 108 central banks recorded losses of at least one year between 1984 and 2005. "

In recent interviews with television channels in India, former RBI governor Raghuram Rajan also said that the latter should not pay more than his profits made to the government. A well capitalized RBI, he said, would be of great help on rainy days.

According to the annual accounts of RBI as of June 30, 2018, the provident fund and asset development amounted to 2.54 919 crore. These funds were created by transfer from the income statement and constitute provisions for risks. As a percentage of total assets, it is less than 7%. The perception that the capital of the RBI is higher than what other central banks have in general is due to the amounts held in CGRA, which amount to 6.91,641 crores.

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