Reserve Bank of India, Rs 1.76 Lakh Crore And The Debate

Unique and indeed unprecedented, when you find world's biggest democracy's Central Bank is playing the role of a saviour to protect its tumultuous economy. Price rise, high inflationary rate, currency getting weaker, immensely volatile stock market, surge of unemployment curve, privatisation ploy of government sectors, withdrawal of subsidy in core basic sectors, continuous cutting down of interest rates in small savings and what not, making this apprehension more evident.

This fearfulness has further aggravated when countrymen came to know that the Reserve Bank of India is transferring a record Rs 1.76 lakh crore to the Centre. The central board of the RBI decided that the Centre would receive a surplus of Rs 1,23,414 crore in the form of an annual dividend and another Rs 52,637 crore by dipping into a pot of reserves that the RBI has traditionally maintained to deal with contingent risks.  

Before going into intricacies, one has to have some knowledge where do the reserves come from.

To understand what the transfer is we should first know where the funds come from. The Central Bank has got three different funds that together comprise its reserves. They are the Currency and Gold Revaluation Account (CGRA), Contingency Fund (CF) and the Asset Development Fund (ADF).

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The CGRA is by far the largest and makes up the significant bulk of the RBI's reserves. The CF is the second biggest fund. It is designed to meet contingencies from exchange rate operations and monetary policy decisions and is funded in large part from the RBI's profits. And lastly, the ADF makes up a much smaller share of the reserves.

Now the most debatable and crucial question comes, how much should the RBI keep? The Reserve Bank of India and the Finance Ministry have been fighting with each other on this issue over a long period of time. The RBI is accusing the government about the dangers of infringing upon Central Bank's autonomy. On the other hand, the government countered that the RBI had reserves far in excess of what the global norms were and, so, should give the excess.      

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Now another inevitable query comes forward, does this really harm the RBI? In fact, it does not immediately do the RBI any harm, the fact remains that the Central Bank now has far less wiggle room in the event of a financial debacle, since its reserves have been emptied to their minimum level or thereabouts. That is, it has the minimum amount to deal with a crisis, but extra cash always comes in handy. That further said, given that the RBI's transfers have now been as emptied as they can be, there is no scope for the government to rely on this source of funding in the near future.  

Above all this can be easily foretold, the game is not yet finished, just started, many trump and intricate over-trump is awaited; though we are only concerned about the economic health of MOTHER INDIA, nothing else.

About the Author

Author, Columnist and Media Educator. HOD, School of Media and Communication, NSHM Knowledge Campus, Kolkata, India. Head Examiner, Media Science, Maulana Abul Kalam Azad University of Technology, West Bengal, India. He can be contacted at debanjan.mediaguru@gmail.com

Disclaimer: The opinions and facts expressed within this article are the personal opinions of the author. They do not reflect the views of News Nation. The NNPL does not assume any responsibility or liability for the same.

HIGHLIGHTS

• Reserve Bank of India is transferring a record Rs 1.76 lakh crore to the Centre 
• The Central Bank has got three different funds that together comprise its reserves. 
• The CGRA is by far the largest and makes up the significant bulk of the RBI's reserves