RBI has set a bad precedent

The transfer of an interim surplus of Rs 28,000 crore by the Reserve Bank of India to the central government kitty would take the total receipts of the government from the bank to a record Rs 68,000 crore this year. It will help the government to manage its troubled finances and meet the revised fiscal target of 3.4% of GDP. Last year also, the government got an interim transfer of Rs 10,000 crore, and it was the government’s demand for a higher amount that was considered to be the main reason for the resignation of Urjit Patel as governor. The appointment of retired bureaucrat Shaktikanta Das in his place was intended to ensure that there was no resistance to such and other demands anymore. Das has obliged with an interest rate cut and a call to banks to transmit lower rates to borrowers so that EMIs are lower. That can earn the government some goodwill before the elections. The government is entitled to dividends from the RBI, but the apex bank has to maintain its funds for its statutory purposes.

The RBI has set a bad precedent. The government has budgeted a higher amount as receipts for the next fiscal, too. If that amount is not received from the RBI, the government’s revenues will be badly hit. It is also unfair to make the next government to deal with the situation. There are other issues and questions also arising from the RBI’s largesse to the government. The funds will help the government to meet the various promises it has made to different segments of society, including farmers, in its interim budget. They are election sops and the government, whose poll prospects are considered to be not very bright, has set great store by them. But the Reserve Bank should not have played the government’s game. As an institution, it has maintained its independence in the past, and even Urjit Patel, who was once considered close to the prime minister, grew into the office and refused to do the government’s bidding.

The government has drawn money from public sector companies like HAL and ONGC, too, and bled these strategic PSUs, to run the show. In the case of the RBI, why was the amount fixed at Rs 28,000 crore? Was it a compromise, as the government had asked for much more? On what basis was this figure arrived at, especially when a committee under former RBI governor Bimal Jalan to decide the right level of the RBI’s reserves, is yet to submit its report? Some norms should be laid down and adhered to.