Updated: August 27, 2019 3:19:04 am
Justifying the Jalan committee’s recommendation to transfer Rs 1.76 lakh crore to the government, Rakesh Mohan, vice chairman of the panel, said that the report has looked into the principles on which the Reserve Bank’s capital needs to be looked at and also how the surplus has to be distributed.
In an interview to CNBC TV18, Mohan said that RBIs mandate is to keep adequate stock of foreign exchange reserves, use OMO for monetary policy purposes and for liquidity purposes which is what it has been doing. “What we have emphasised in the committee report are the principles on which the RBI’s capital needs to be looked at and also for the surplus which is to be distributed”. He added that as long as the RBI and the government put together, follow the principle of keeping the percentage of economic capital at 5.5-6.5 per cent, that’s what will determine the surplus distribution, keeping in mind of course that the balance sheet has to expand by about 10 per cent a year. This means the economic capital will have to expand by something of similar order, 10 per cent a year. As long as those principles are satisfied, we will be in very good shape.
Several market participants hailed the RBI’s move though with a caveat that the fund needs to be used for stimulating the economy. Rashesh Shah, chairman, Edelweiss Group said that it provides the government with the room to spend on three things — capitalising the banks, expediting capital expenditure cycle and providing tax breaks including GST, so as to boost the consumption cycle.
Best of Express Premium
“As inflation remains tepid, oil prices are relatively soft and interest rates in the economy are low, we may see private investment pick up a year down the line if the consumption consumption cycle is restarted. While RBI has the tools of monetary policy, this move by RBI would provide the government with tools on the fiscal side,” said Shah. There are some who raise concerns over the discipline in utilising the fund given the past track record on utilising disinvestment proceeds and cess collected on various accounts.
📣 Join our Telegram channel (The Indian Express) for the latest news and updates
- The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.