RBI transferred 1.76 lakhs Crores to the Central Govt based on the Bimal
Jalan Committee Recommendation to help the present Government to curb economic
slowdown. It is the five times of govt was receiving from the Central Bank from
last few years. RBI had paid Rs. 28000 crores to the Govt in 2018-19 fiscal year
as an interim dividend and transferred Rs.1,48,051 in 2019-20 Fiscal year to
help the Govt in meeting fiscal deficit as tax collection was less because of
There was already a controversy in the market related to the higher gain of
dividends by the RBI and another controversy arose on why RBI had not paid in a
strategic manner and paid such a huge amount in one go. Many economists saw this
as a bailout for the Govt because of the failure in its policies and also
believed that as contingency fund was transferred in the 2019 -20 fiscal year,
now the same amount cannot be given in next year.
In 2018 -19, net interest on Liquidity adjustment facility
became positive after two years which can be the reason for huge profit eared by
the RBI but does not mean it will be positive in 2019-20 fiscal year. Seeing
that Govt is more inclined towards consumption that investment, the GDP is
falling every year, therefore the Govt will need the bailout this year also.
It was said by the Govt that the surplus given by the RBI will be utilized
- Public Sector Banks Recapitalization to help Banks and to support
- To deploy for the needs of Infrastructure as it will generate growth,
- To help Nodal agencies and to support neglected sectors of the economy
- Reduce market borrowing
- To replace the sovereign bond issue
The lack of liquidity is not the real hindrance in the growth of the economy
but the fewer investments areas the interest is getting low and it will fall
more and debt on India will also increase.
Main issues in transfer of 1.76Lakh Crore:
- In 1.76 lakh Crore, Rs.52,640 crore are from RBI's Contingency Fund
and 1.2 lakh from RBI's profits. Profits can be transferred to Government as it
is considered to be the owner of Central Bank according to Section 47 of the
Reserve Bank of India Act, 1934where excess income can be given to Govt. The
main problem was with the transfer of the Contingency Fund and reducing the
Contingency fund from 6.8% to 5.5 -6.5%.
- As RBI needs to maintain Contingency Fund to protect and stabilise the
Indian economy during financial crises. India is still a developing nation, it
is facing new challenges every year due to Government policies or new laws, RBI
needs to increase the contingency funds instead of decreasing it because of
- Two ex RBI Governors highly opposed the idea of this massive transfer
and still it was passed by the new Governor with the recommendation of Bimal
Jalan Committee which was formed in consultation with the Government. The
autonomy of the Central Bank can be questioned.
- If funds were utilized for investments and infrastructure instead of
trying to meet the deficit and helping NPA's.
- RBI kept the lowest asset reserve of 20% because of which safety
umbrella had become thinner.
Because of the following reasons, I am not in support of this massive transfer
and my opinion does not change seeing the COVID -19 situation. According to the
Bimal Jalan committee, if financial crises happen, the RBI balance sheet should
be strong enough to recapitalize the Bank, to inject money in the market.
as a developing nation and currently facing economic slowdown and not having a
reserve currency to reboot can be a risky affair and also seeing the risky
policies by the government. It will be safe if RBI keeps money which can be
enough to overcome the economic dent.
We can see the loopholes in Govt strategy or planning to invest surplus money
given by the RBI in infrastructure by facing poor health facilities, lack of
infrastructure, the situation of migrant workers, and lack of healthcare
equipment during this pandemic situation. Even after taking $1billion from the
World Bank, the Government is failing in many areas.
If the RBI had more
Contingent fund during this time, it can inject in the economy and many
businesses could have survived this pandemic. Even Govt could also have utilized
the fund in saving the economy and helping the citizen more.
What role in your opinion should DRBI play after the COVID-19 crisis in India's
The effect of the pandemic can be long term and destructive as consumers will
not be able to make up for lost consumption especially in the service industry,
it will a necessary step for the RBI to support these businesses by giving out
loans for their survival.
RBI can play a major role in the development of India after the COVID 19
- It needs to increase the liquidity in the market by cutting repo rate
- It can give relaxation in debt servicing. Market operators can work hand
in hand with SEBI and RBI in formulating fiscal policy to curb the economic
slowdown and price determination.
- RBI can prohibit banks to keep excess of the liquidity to the RBI.
- It can encourage banks to invest in Corporate Bond.
- Public bank where people invest, there the interest rate can be
- RBI can invest in the agricultural sector as during this pandemic, they
are suffering a lot due to the closing of state borders. RBI can instruct
rural banks to provide loans to farmers at less interest rate and even can
facilitate them to form cooperative to support them.
- Seeing the current situation of Indian education system where most of
the educational system does not have facilities to provide online lectures
due to technological barriers. The RBI can issue guidelines to provide loans
less interest rates to the educational institution.