Modi government faces a setback in their plan to get aid from RBI’s reserve in its budget for FY20.
Transfers envisaged under the current plan under discussion will be too meagre and stretched over a period of time, according to a person aware of the matter.
- The high-level panel led by Bimal Jalan to submit report on 16th July to narrow the differences between RBI and Finance Ministry over RBI reserve.
- The proposed transfer is too meagre and stretched over a period of time. – source of Economic Times.
- Majority of Panel is against the unconditional transfer and supports transfer over a period.
- Finance Secretary for the government, Subhash Garg disagreed with the views by the other panel members.
- Finance Ministry believes the 28% buffer kept by RBI is way above the global norm of 14% of gross assets.
Why government wants RBI’s reserve?
The Indian government has earlier denied that they don’t want any money for making the fiscal situation comfortable. The government wants to fix an appropriate economic capital structure framework of RBI. The main aim here is to reduce the buffer from 28% to at least 14%, which is the global norm i.e. most of the central banks have only 14% buffer around the world. This will free up around 3.6 lakh crore which can be used by the government for its policies. After a long debate over how the fund will be released, the panel is expected to finally give a solution to narrow down the differences.
On the other hand, the central bank has not been a fan of Modi government’s policies over the years. We have seen the verbal spat between former Finance Minister Arun Jaitley and RBI governors in the last tenure of BJP. Former RBI Deputy Governor Viral Acharya has made a statement in the past about how government policies are like T20 while the RBI wants to play a test match. And after his resignation recently, the rift is most probably still there.