May 22, 2021 4:34:23 am
INDIA’S COVID-hit economy is expected to get a leg-up with the Reserve Bank of India (RBI) deciding to transfer a higher amount of Rs 99,122 crore as surplus to the Central government for the accounting period of nine months ended March 31, 2021. This is 73.5 per cent higher than Rs 57,128 crore transferred for the accounting year 2019-20.
The RBI has changed the accounting year from 2020-21. From the current fiscal, 2021-22, the financial year starts in April and ends in March. The transfer of Rs 99,122 crore for the fiscal ended March 2021 was approved by the RBI’s Central Board on Friday. The transfer takes into account maintaining the Contingency Risk Buffer at 5.5 per cent of RBI’s economic capital.
The biggest toll of the second wave is in terms of a demand shock — loss of mobility, discretionary spending and employment, besides inventory accumulation, while the aggregate supply is less impacted, the RBI said in its ‘State of economy’ report this week.
On the fiscal front, the renewed surge in the virus is expected to contribute to a marginal shortfall in revenue and a redirection of spending toward healthcare and virus response relative to what the government budgeted in February. The RBI surplus is expected to fill the gap to a great extent. “As a result, we now expect a wider general government fiscal deficit of about 11.8% of GDP in fiscal 2021, compared with our previous forecast of 10.8% and an estimated 14% in fiscal 2020,” Moody’s said recently.
In 2019, the RBI Central Board transferred a record surplus — Rs 1.76 lakh crore — to the government based on a report submitted by the Bimal Jalan committee.
A significant part comes from the RBI’s operations in financial markets when it intervenes, for instance, to buy or sell foreign exchange and during Open Market operations when it attempts to prevent the rupee from appreciating. Other sources are income from government securities it holds, returns on its foreign currency assets that are investments in the bonds of foreign central banks or top-rated securities, and deposits with other central banks or the Bank for International Settlement or BIS. It also lends to banks for very short tenures, and gets management commission on handling the borrowings of state governments and the Central government. The RBI buys these financial assets against its fixed liabilities such as currency held by the public and deposits issued to commercial banks on which it does not pay interest.
The level of surplus or profits the RBI pays to the government has been an issue of conflict for long. Over the last decade or more, the government had sought higher payouts saying the RBI was maintaining reserves or capital buffers that were much higher than many other global central banks’ buffers. The government has argued that such relatively lower transfers crimped public spending for infrastructure projects and social sector programmes, considering the pressure to meet deficit targets and to provide space for private firms to borrow.
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