A bitter debate may hound Finance Minister Nirmala Sitharaman in the first fortnight-- what to do with RBI's surplus reserves

Senior BJP leader Nirmala Sitharaman arrives at Parliament House, in New Delhi.Photo/Atul Yadav) (
  • The Bimal Jalan panel, set up to decide the appropriate capital reserves for the RBI, will hold its next meeting on June 13.
  • The six-member Jalan panel will recommend the appropriate capital reserves that the central bank should maintain.
  • Former RBI governor Urjit Patel reportedly quit after opposing the government's proposal to extract a big chunk of the reserves.

The Narendra Modi government has had its eyes on the surplus reserves of the Reserve Bank Of India (RBI) for some time now. But its attempts have been stalled, most famously by the central bank's former governor Urjit Patel, who ended up resigning from his position before his term ended.

But Modi has come back stronger, and as Nirmala Sitharaman takes charge of the Finance Ministry, one of the first debates to spring up after she assumes may be a tough one-- should the government tap into RBI's surplus reserves?

Waiting for Jalan

The Bimal Jalan panel, set up to decide the appropriate level of capital reserves for the RBI, will hold its next meeting on June 13, according to Finance Secretary Subhash Chandra Garg who is one of the members of the six-member Jalan Committee.

Earlier in the day, at another event, Garg had said the panel had sought three-months extension and was still working on the report. The head of the panel, Jalan, had said in April that the report may be finalised by May or June.

The mandate of the panel is only for deciding the quantum and the formula of transfer not suggest where and how the surplus is to be used which is a government prerogative, according to an IANS report citing sources. Modi's rivals have been critical of the proposal and have called out the government for trying to use RBI's money for fiscal excesses. The country's economists have been divided over the issue.

The central bank's core reserve -- contingency fund -- is only around 7% of its total assets and the rest of it is largely in revaluation reserves which fluctuate with corresponding changes in currency and gold valuations.

In 2017-18, the central bank's contingency funds and revaluation reserves stood at ₹2.32 trillion and ₹6.92 trillion respectively.

RBI data shows that the growth in revaluation reserves has far exceeded the growth in contingency fund. Though the Ministry has not stated, it is believed that the Finance Ministry was seeking to transfer a surplus of ₹3.6 lakh crore, more than a third of the total ₹9.59 lakh crore reserves of the central bank, to the government.

While revaluation reserves have more than tripled from ₹ 1.99 trillion in 2008-09 to ₹6.92 trillion in 2017-18, the contingency fund has grown 50% in the same period from ₹1.53 trillion to ₹2.32 trillion.

As per the 2016-17 Economic Survey, equity at about 27% of the RBI's balance sheet was the fourth highest among the global central banks.

As of now, the RBI Act does not specify the amount to be transferred to the government and there is no consensus on the right level of capital for a central bank. "There is no particular reason why this extra capital should be kept with the RBI. Even at current levels, the RBI is already exceptionally highly capitalised. In fact, it is one of the most highly capitalized central banks in the world," said the Survey.

With inputs from IANS

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