Centre should use RBI bonanza to spur growth, jobs

Conventional economic practice dictates that spending by a family, state or central government should be allowed only when there’s commensurate income or revenue. Borrowing to spend is inadvisable beyond a point as the interest liability then begins to eat into the vitals of the economy; and reserves must be invested to create more wealth. Given these basic principles, the big question is, how should the government utilize the Rs 1.76 lakh crore transferred from the RBI surplus and contingency accounts? Bimal Jalan as RBI governor would have never approved of government withdrawals to bridge the yawning gap in its revenues and spending this fiscal. Ironically, it is the Jalan recommendations on which the Modi government has banked heavily to get over its liquidity crunch. It has drawn out from the RBI about Rs 1.23 lakh crore -- the entire surplus generated in the year to June 2019 – plus Rs 52,637 crore from contingency funds to part-finance its deficit due to lower-than-projected revenues.

It is accepted that the political leadership has the final say in these matters. Even so, we must recognise that the government has gone all-out over the last one year to get its hands on the RBI’s coffers. Now that the deed is done, the end-use of these funds is what’s very important. These funds must be used to create capital assets and generate jobs. They could be used to front-end the promised Rs 70,000 crore bank recapitalization; alternatively, they could be put into long-gestation infrastructure projects to create assets and provide work opportunities. Yet, the fear is that the money will, instead, be drained out to meet revenue expenses, given that the direct tax collection grew at just 9.7% in the first quarter as against the budgeted 23% growth.

The Bimal Jalan panel may have devised a formula for transferring surpluses, dividends, contingency funds, currency and gold revaluation account monies, asset development funds and investment revaluation funds, and RBI Governor Shaktikanta Das may have given up his hold on these resources. But prudence demands that the government deal with the surpluses to create growth, jobs and wealth, not fill a deficit hole. The government will do well to set up a high-powered standing committee of both RBI and finance ministry top brass to deal with surpluses, on the lines of the six-member panel set up to deal with interest rates. Not only should the committee be empowered to manage withdrawals smoothly but also mandated to decide on the end-use of the funds. Otherwise, most liquid funds sourced from the RBI could go the way of the proceeds of disinvestment – family silver being sold or melted to fund deficits.