With better counsels prevailing in the finance ministry, Narendra Modi government escaped another embarrassment when the RBI Governor Urjit Patel was all set to resign.  The RBI has assiduously built up its reserves up to an enviable Rs 24,93,000 crores, and the government  is now eyeing the RBI’s reserves through a higher dividend. The RBI, under the Reserve Bank of India Act 1934, has to pay the government its surplus after making provisions for bad and doubtful debts, depreciation in assets and contribution to the staff and superannuation fund, among other things. Accordingly, it paid a dividend of Rs 30,659 crores, which is around 63 per cent higher than what it had paid for the July 2016-June 2017 financial year. In August, the RBI paid Rs 50,000 crores as dividend to the government in line with the Budget provisions, helping the Centre stick to its fiscal roadmap.

This amount is not to be sniffed at considering that the Union Budget amounts to Rs 21.47 lakh crores. It would be pertinent to recall that when finance minister Arun Jaitley presented the Union Budget this year, the credit rating agency Fitch had said while the Union Budget supported growth, it did not address the problem of fiscal consolidation and left weak finances to be tackled by the next government.

That India’s finances are weak is a reality that is giving the jitters to the government, with the general election now just months away. The banks remained stressed under the burden of huge non-performing assets, industries like construction, engineering and infrastructure have huge stressed assets, there is a glaring current account deficit and the rupee has depreciated by 15 per cent since January this year. Interestingly, China, with which India is always compared, has a current account surplus built up through its thriving exports.  Against this scenario, it will be prudent to leave the RBI’s reserves at a level which it thinks best for the economy. Its foreign currency assets are a cushion against global and domestic economic shocks. If the government tries to grab the RBI’s reserves, it could deteriorate the central bank’s balance sheet and cripple its ability to stabilise the external sector leading India to a severe economic crisis.

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Kenter Joya Riba

(Managing Editor)
      She is a graduate in Science with post graduation in Sociology from University of Pune. She has been in the media industry for nearly a decade. Before turning to print business, she has been associated with radio and television.
Email: kenterjoyaz@easternsentinel.in / editoreasternsentinel@gmail.com
Phone: 0360-2212313

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