RBI vs. Finmin: The budget deficit is under control, has not sought to obtain a Rs 3.6 lakh credit from the central bank, says Garg

While all eyes are turned to the Reserve Bank of Secretary of State for Economic Affairs, Subhash Chandra Garg, said Friday that the Indian government did not want rivalry between the council of government. administration and senior management and government candidates on the verge of arguing a large number of contentious issues meet its tax requirements. However, he admitted that a proposal was being discussed to set "an appropriate economic capital framework for the RBI".

"There is a lot of misinformation circulating in the media, the government's financial calculations are quite on track, and there is no proposal to ask the RBI to transfer a crore of 3.6 rupees or more. lakh, as it is supposed, "tweeted Garg.

A request from the Ministry of Finance for the transfer of a large sum as a surplus of the RBI would be one of the main areas of contention between the government and the RBI. The two also have different views on many other issues, including the use by the Ministry of Finance of the powerful Section 7 never used before to open discussions with the RBI and a proposal to ease the framework. strict 'rapid corrective measures' (PCA) to allow weak public sector banks to lend more freely when NBFCs face a liquidity crisis.

Although the RBI recently accepted some of the government's requests, it has allowed more bank loans to NBFCs. and relaxed the conditions for Indian companies to increase their debt abroad – the most difficult being capital transfer issues and the PCA framework.

While Garg, even on Friday, inspired confidence in the government's calculation of public finances and repeated deficit target of 3.3% of GDP for the current fiscal year, many badysts believe that in As many revenue areas are not operating as planned, the government may need to reduce spending to meet the fiscal goal. In addition, since the demonetization did not yield any benefits to the RBI and therefore to the government, three-quarters believe that the election-related government would be more than happy if the RBI broke the convention allowing it to transfer a higher amount to the government, apart from profits that he usually transfers.

However, an aggressive government position placed him in a weak wicket. At a recent conference in Mumbai, RBI deputy governor Viral Acharya not only vigorously defended the government's action, but also credited information suggesting a specific amount requested by the ministry. He referred to an article entitled "Governments set the RBI's excess capital at Rs 3.6 billion and look for it as surplus" by the Cogencis news agency. Acharya quoted recent articles on the subject of former deputy governor Rakesh Mohan, in which he explained why a central bank needed a solid balance sheet to pay for it. all of its critical functions for the economy. "The long-term tax consequences would be the same if the government today issued new securities to finance the expenditures. The capital search of the RBI does not create new net net income over time and provides only an illusion of free money in the short term, "wrote Mohan.

Acharya also sought to dispel the notion of fears of losses for central banks are illusory. "According to the Bank for International Settlements (BIS), 43 out of 108 central banks recorded losses of at least a year between 1984 and 2005."

In recent interviews with television channels in India, Raghuram Rajan, former RBI governor, also said RBI should not pay more than his profits made to the government.A well-capitalized RBI, a- he said, would be very useful on rainy days.

According to the annual accounts of the RBI as at 30 June 2018, the provident fund and badets development totaled 2.54 919 crore.These funds were created by transfer from the income statement and consti kill provisions for risks. As a percentage of total badets, it is less than 7%. The perception that the capital of the RBI is higher than what the other central banks have in general is due to the amounts held in CGRA, which amount to 6,91,641 crores.