In a first of its kind The Reserve Bank of India (RBI) will transfer Rs 1.76 lakh crore to the government. The remittance includes Rs 1.23 lakh crore of surplus for FY19 and Rs 52,637 crore of excess provisions that RBI rolled back on revised Economic Capital Framework.
While the Markets and Industry can cheer in the hope that the neo-riches of government will imply that flood gates of fiscal relief and spending is about to open up, the fund itself takes away a key cushion out of India’s ‘Inherent Economic Strength’.
The released money is a kind of emergency fund that RBI keeps with itself to meet all risks/losses primarily built up from retained earnings. Before the release the funds amounted to 6.8% of RBI’s balance sheets. With this money moving into treasury the reserves have now been limited to 5.5%.
The monetary input was not part of the Government’s budgeting exercise and can wipe out the fiscal deficit to zero.
While surplus transfer from RBI to government are a regular feature, they have never crossed 66,000 crores. The figure of 1.76 Lakh crore should enable Modi government to unleash big spending projects.
However the chances are that this money will be used to plug-in the revenue deficit, which in turn would mean that RBI’s savings , instead of being invested for nation’s growth, will go in for the regular government expenses.
The statement from RBi said “While the revised framework technically would allow the RBI’s economic capital levels as on June 30, 2019 to lie within the range of 24.5 per cent to 20.0 per cent of balance sheet (depending on the level of realized equity maintained and availability of revaluation balances), the economic capital as on June 30, 2019 stood at 23.3 per cent of balance sheet. As financial resilience was within the desired range, the entire net income of ₹1,23,414 crore for the year 2018-19, of which an amount of ₹28,000 crore has already been paid as interim dividend, will be transferred to the Government of India. This is in addition to the ₹52,637 crore of excess risk provisions which has been written back and consequently will be transferred to the Government.”
The government has already received ₹40,000 crore during FY19. In February, RBI had announced a ₹28,000 crore interim dividend, taking the total dividend transfer to the government to ₹68,000 crore. The RBI central board is yet to approve the ₹28,000 crore interim dividend.
