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Mainstream, VOL 62 No 21, May 25, 2024

Fault lines in the RBI’s surplus transfer to government | AITUC

Saturday 25 May 2024


All India Trade Union Congress

Press release

The following press statement was issued on 23.05.2024 to the press by Amarjeet Kaur, General Secretary, AITUC

Today’s press reports say that the meeting of the Central Board of Directors of the Reserve Bank of India has taken a decision to transfer Rs 2,10,874 crores as surplus to the Union Government for the accounting year 2023-24. This is a phenomenal amount, more than double the Rs87,416 crore transferred in FY23. Termed as a windfall gain for the centre, is financial imprudence and reveal flaw lines in the policy of the government eventually imperilling financial stability.

The Expert Committee headed by the former governor of RBI, Mr Bimal Jalan has made this financial phenomenon happen for the government. It is noteworthy that in the year 2018 there were open differences between RBI and the government over transfer of surplus funds to government. RBI had refused the proposal of the government to transfer huge dividends to the government saying that it would jeopardise the imperative buffer. Yet the government had its way through the expert committee constituted specifically for the purpose.

This is the highest surplus fund transfer from RBI to the government ever in history. The finance minister has resorted to the easier path of taking a glide towards non-revenue RBI transfer to plug the fiscal deficit. How the RBI managed to transfer such phenomenal funds is surprising. The RBI committee’s statement that the economy is robust leaves all puzzled.
In 2019 the RBI had transferred Rs1,76, 015 crores as surplus funds to the government. That was the election year and this again is the election year. In all the intervening period too, the transfer of surplus funds from RBI to the government have been substantially high. This has raised suspicious questions. There has been no transparency in the process. Since the year 2018-19, the Bimal Jalan committee has been recommending that the Contingency Reserve Buffer to remain between 5.5% to 6.5% of the RBI balance sheet which is very low.

Contingency Risk Buffer is a specific provision fund by the RBI which is primarily used during any unexpected and unforeseen contingencies including depreciation of securities values, risks from monetary rate policy changes, systemic risks to the system. The question that arises is should the RBI transfer so much funds to the government maintaining only lower end of buffer particularly when the world economies are unstable. The world has seen and experienced the pandemic situation. There can be unforeseen turn of economies leading to overnight pressure. Limited strength of the balance sheet of RBI means restricted ability to manoeuvre and manage. A robust balance sheet with substantial buffer is reflection of economic stability. The government’s continuous attempts to reduce the contingency reserve to paint a false façade of robust economy is only exposing the country to possible economic risks.

There are fault lines in this transfer of surplus funds of RBI to the union government. The finance minister owes a detailed explanation to the people as to where the dividend has accrued from and why the government is extracting so much surplus jeopardising the financial stability.

[—Amarjeet Kaur]

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