The Reserve Bank of India has decided to pay $ 24.8 billion in dividends and surplus capital to the Modi government.
It is being claimed that this will help the Modi government in curing the critical condition of public financial institutions.
But with this, concern is also being raised about the autonomy of the Reserve Bank of India. Last year, the then RBI Governor Urjit Patel and the Modi government had disagreements at the policy level and Patel resigned before the term was over.
Vivek Dahejia, Professor of Economics at Carlton University, Canada, told the Financial Times on the RBI's decision, "The central bank is losing its executive autonomy and becoming a means to fulfill the greed of the government." The activities of RBI are monitored.
"It would undermine the credibility of the Reserve Bank," he said. Investors who are looking towards India will say that RBI is completely under government control. I don't think this is good for the economy. ''
In a statement issued on Monday, the RBI said that in the last financial year, total income of $ 17.3 billion and surplus amount of $ 7.4 billion is going to be handed over to the government. The Reserve Bank said that the transfer is under the New Economic Capital Framework, which has been accepted recently.
A committee was formed under the chairmanship of former RBI Governor Vimal Jalan and the same committee recommended the New Economic Framework. The recommendations of this committee have been accepted by RBI.
RBI has agreed that it will give the entire income of the last financial year to the government. A dispute arose with the Reserve Bank in October last year about the use of safe money.
The then Deputy Governor of RBI, Viral Acharya, warned the government that if the government increased its intervention at the policy level in the RBI, it would have very bad consequences. Viral Acharya had said that the government wants to get the safe money with RBI.
Only two months after this, Urjit Patel resigned from RBI. After this, the Modi government made Shaktikanta Das the governor.
Paranjoy Guha Thakurta, a senior journalist who deeply understood the ups and downs in the economy from BBC correspondent Dilnawaz Pasha when Shaktikanta Das was made governor, said, "On the day Shaktikanta Das became RBI governor, it was clear that the government would like It will have to be done by RBI.
"Shaktikanta Das has been an IAS officer and used to work as a spokesperson in the Ministry of Finance," says Thakurta. When demonetisation took place, Das supported. Shaktikanta Das was studying history at St. Stephen's College in Delhi. Das has worked as a government official. It is very important to have money with the Reserve Bank because if there is anything in the foreign market, the rupee will be weaker. Government figures are already doubtful. This matter has also been raised by the former Economic Advisor of the Modi government.
The government is under pressure due to the weakness in the Indian economy. The Indian currency rupee has crossed 72 against the US dollar. The pace of economic growth has not been accelerated for the fourth consecutive quarter. But the question still remains whether Modi will be able to strengthen the economy by taking money from RBI. The government has failed to achieve the target of tax collection.
The RBI pays dividends to the government every year based on its income from investment and printing of notes. For the last few years, the finance ministry was seeking a bigger payment from the RBI.
The Reserve Bank says that it has more money than needed, that is why the government has given such a huge amount. It is said that a situation of dispute between former RBI governor Urjit Patel and the government was created about this.
The Vimal Jalan committee had recommended that RBI should have 5.5 to 6.5 percent amount of its balance sheet. Earlier this amount was 6.8 percent. The government aims to reduce the 2020 budget deficit to 3.3% of GDP.
Finance Minister Nirmala Sitharaman had said last week that the government would soon invest 700 billion rupees in government banks. The banking sector of India, Asia's third major economy, is undergoing a crisis.
Viral Acharya came into the limelight as the deputy governor of RBI on October 26, 2018, when he heard the Modi government scandalously accusing the RBI of compromising autonomy. His speech took place exactly three days after the Reserve Bank board meeting.
In his nearly one-and-a-half-hour speech, he had said that governments that do not respect the autonomy of their central banks have to face the rage of financial markets in a hurry.
That address by Acharya was seen as a ruckus in the relationship between the RBI and the Modi government.
Actually, shortly before this speech there were differences between the government and the Reserve Bank on many issues. For example, the government wanted a reduction in interest rates, and was trying to give more cash to the non-banking finance companies, that is, the NBA also wanted that the RBI should give some part of its reserves to the government.
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