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State Secretary for Economic Affairs, Subhash Garg, said Friday that the Center had not proposed to the central bank to ask the central bank to reduce its position to a relaxation of its position . transfer a specific amount. The issue under discussion related to an appropriate framework of economic capital.
Garg's Twitter statement follows numerous media reports of the latest Finance-RBI confrontation over the previous one, referring to section 7 of the RBI Act in its report. communication with the central bank last month.
"The media often speculate badly. The government's financial calculations are quite on track. It is not proposed to ask the RBI to transfer Rs 3.6 or 1 lakh crore (trillion dollars) as planned. The only proposal under discussion is to set the appropriate economic capital framework for the RBI, "tweeted Garg.
Despite the tweet, it is unlikely that things will change much. Government sources said in talks on the economic capital framework that the government had told the RBI that according to its calculations, the central bank could release Rs.3.6 trillion if it changed its formula. The final decision on the amount to be paid will be the responsibility of the RBI.
The government will make no compromise on the search for excess capital from the RBI under a framework, but will be flexible as to the amount to be paid and is willing to negotiate. According to senior sources in the government
"The government's budget deficit in 2013-2014 (2014) represented 5.1% of gross domestic product (GDP). From 2014-2015 (fiscal 2015), the government has managed to reduce it considerably. We will end fiscal year 2018-2019 (fiscal year 19) with a budget deficit of 3.3% of GDP. The government has in fact renounced 700 billion rupees in market debt this year, "Garg said on Twitter.
Many uninformed speculations circulate in the media. The government's financial calculations are quite on track. It is not proposed to ask RBI to transfer 3.6 or 1 lakh crore as planned. (more …)
– Subhash Chandra Garg (@SecretaryDEA) November 9, 2018
The government FD for the 2013-2014 fiscal year was 5.1%. From 2014-2015, the government has managed to reduce it considerably. We will end the 2018-2019 fiscal year with a FD of 3.3%. The government has in fact renounced 70000 crore loans contracted this year. (more …..)
– Subhash Chandra Garg (@SecretaryDEA) November 9, 2018
The only proposal under consideration is to set the appropriate framework for the economic capital of the RBI.
– Subhash Chandra Garg (@SecretaryDEA) November 9, 2018
Officials said the government has long been demanding a new economic capital framework. This will help determine the level of excess capital that the RBI retains to address systemic risks and the dividend it pays to the government. The government believes that the RBI is more conservative than other central banks in calculating capital requirements and the dividend paid to the Center.
The RBI calculates its capital requirements based on "stressed risk value" valuations at a 99.99% confidence interval, while the government wants the central bank to use only "value at risk" ( VAR) at 99%. confidence interval, which most other central banks use. In other words, the RBI is more cautious than the government wants.
Switching to the VAR at a 99% confidence interval will result in a reduction in the amount of the RBI's provisions, freeing up more money to pay Center, officials said. The Center will continue to urge the central bank to adopt a new dividend model and policy at the next RBI board meeting on November 19, as well as through other channels. formal and informal communication
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"But we do not say supply it according to what we want. Let the RBI decide how much it wants to fund. However, it must be less conservative, "said a senior official, adding that the amount withheld should not be paid at once, but that it can be spread over several years. According to the standards in force, the RBI transfers each year a surplus of its balance sheet to the Center in the form of a dividend
For its fiscal year from July 2016 to June 2017, it had transferred 306 billion rupees to the government. For the period from July 2017 to June 2018, the RBI announced the transfer of 500 billion rupees. The government's request for additional surplus has been around for a long time.
In his 2016-2017 economic study, former chief economic advisor Arvind Subramanian detailed the government's point of view. A chart of the survey shows that only three nations – Norway, Russia and Malaysia – have banks whose equity is higher as a percentage of the total balance sheet than India.
"There is no particular reason for this additional capital to be retained. with the RBI. Even at current levels, the RBI is already exceptionally highly capitalized. In fact, it is one of the most capitalized central banks in the world. Thus, it would seem more productive to redeploy some of this capital in different ways, "said Subramanian in his report.
" The key principle to follow in this process is that the surplus capital of the RBI, including the created one by demonetization, is a gain in balance sheet or wealth and not a gain in income. Therefore, the uses that are made of it should be balance-sensitive, "said Subramanian, adding that any strategy to use excess capital should be developed within the framework of applicable laws and with the full cooperation of the RBI.
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