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The new governor of the Indian central bank was worried when asked whether his institution was about to transfer 400 billion rupees ($ 5.7 billion) to the government of Prime Minister Narendra Modi in order help New Delhi rectify its accounts before the end of the fiscal year, in March.
When a decision was made by the Reserve Bank of India, Shaktikanta Das said at a press conference: "You will know more about you".
A month later, after a sudden radical change at the helm of the Indian central bank, the institution's payments to the government and discussions about how much it should be in the capital have become a touchstone of the debate. broad on its economic role – and its independence.
"The problem is a litmus test. Is it an independent central bank or not? Said Saurabh Mukherjea, founder of Marcellus Investment Managers.
For months, New Delhi has been pressuring the RBI to pay the Treasury more generous payments from its profitable operations – a point of friction that led to the sudden resignation of former governor Urjit Patel on December 10th.
His successor, Mr. Das, should now generate an interim dividend well above last year's estimated $ 1.5 billion – to help New Delhi meet its deficit target this year after a revenue shortfall from the new goods and services tax.
Yet this might be only a prelude to a more generous payment. An expert panel, made up of current and former members of the RBI and the Ministry of Finance, is currently examining whether the RBI should transfer what New Delhi sees as its "excess capital," potentially offering the government a unique manna, representing tens of billions of dollars. dollars. Given the perceptions of a central bank growing under the New Delhi regime diktatSasha Riser-Kositsky, an badyst at the Eurasia Group, said that a sudden transfer of large-scale capital to the government could "sound the alarm."
advisable
"If it was only this isolated problem, investors might be more willing to give the benefit of the doubt to the government," he said. "But this context matters."
In New Delhi, government officials said that the use of accumulated capital during the RBI's profitable years of business was a legitimate means of strengthening public finances, which would further facilitate public spending without increasing loans contracted by the government.
"Why should we borrow?" Said a manager who requested anonymity. "This money lies in the coffers of the central bank."
But others warn that an erosion of the RBI's independence, or even widespread perception, could undermine India's long-term macroeconomic stability.
Proposals for a special capital transfer come as New Delhi urges the RBI to lift restrictions on new lending by 11 of the weakest of 21 state-controlled Indian banks, limits that were intended to cope with a slow crisis doubtful loans. Mr. Das has already given in to a boost from the government to ease the restructuring conditions for bank loans to small businesses.
"You may wonder whether these claims are reasonable or unreasonable, but it certainly plays more on the tone of the Ministry of Finance," said Reuben Abraham, general manager of the think tank IDFC Institute, about M Das.
Like most central banks, the RBI realizes profits on its holdings of bonds and on currency movements. Some of these profits are transferred each year to the government – in the form of dividends – while others are retained by the bank as contingency protection.
advisable
However, the administration of Mr. Modi believes that the capital of RBI has reached an excessive level and could be deployed more usefully. In a recent article, Arvind Subramanian, the government's former chief economic advisor, argued that out of the RBI's total capital of 10.5 billion rand, between 5.3 and 7.3 billion rupees (75 to 104 billion rupees) was "surplus" and could be transferred to the treasury.
Others argue that the central bank's balance sheet has been artificially inflated by the persistent depreciation of the rupee, which has increased the value of its foreign currency holdings estimated at 400 billion US dollars.
Analysts say it is this market value accounting of the RBI's foreign currency holdings that explains what New Delhi considers to be the "surplus profits" of the central bank. The value of these reserves could also decrease if the rupee appreciates.
Raghuram Rajan, Patel's predecessor as governor of the RBI, also warned that the strong capital position was the key to his triple A credit rating, which would allow him to borrow in times of crisis. "Siding on the country's rating would give us very expensive financing," he said.
The debate on a special capital transfer has a special resonance given its timing, just before the national elections. Critics fear that the government wants the RBI funds to promise generous spending.
However, Subramanian told the Financial Times that these funds from a special transfer of capital should be used for very limited purposes. "I would be shocked if it were used for routine expenses or to finance the budget deficit," he said. "It should only be used in exceptional circumstances for things that pay a lot."
Although the end-use of the funds remains uncertain, the panel may disappoint the government's hopes of making a significant capital transfer, said River Valley Asset Management strategist Rajeev Malik. "Committees in India are usually set up to tell the government what it wants to hear."
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