On Monday, the reserve bank of India transferred a surplus of 1.76
lakh crore to the government.
The surplus reserve has been granted following the recommendations
by Bimal Jalan committee.
The total amount is constituted by a contingency reserve of Rs
52.63 thousand crores and a dividend of Rs. 1.23 lakh crore.
The Bimal Jalan Committee:
The Bimal Jalan Committee is an expert committee constituted by
RBI and led by the former RBI governor Dr Bimal Jalan.
The committee was assigned with the task to suggest guidelines on
how the RBI can transfer its surplus to the government. It formulated a revised
economic capital framework to provide related guidelines.
The committee recommended that the realised equity (made up from
retained earnings) could be utilized to meet the risks and losses. But
revaluation reserves (the reserves which are built up from the revaluation of
undervalued assets) can be used to meet only the market risks.
How does the RBI accumulates money?
The chief function of RBI is to manage the borrowings of the
central and state governments. Payment systems and Banks are also regulated
by the RBI.
The returns earned from the foreign currency assets
constitute a major portion of RBI’s income. Additionally, it can make profit
from earning interest on government bonds and securities.
The RBI reserve holds three kinds of funds namely: the Currency
and Gold Revaluation Account, the Asset Development Fund and the Contingency
The relationship between RBI and the
The RBI functions as an advisory body to the government and not
directly owned by it.
The Reserve Bank of India Act, 1934 specifies under article 37
that the central bank would allocate its surplus (which is income minus
expenditure) to the government.
What’s the fuss about?
The RBI reserves are not designed to facilitate the government to
help meet its expenditure. The reserves are the product of saving of many
decades to tackle extreme situations like a financial crisis.
Further, the amount of transferred surplus this year is over
double of the same in the previous year.
The transferred surplus will give a shoulder room to the
government which has so far been unable to gain sufficient tax revenue in a
struggling economy. On what purpose will the surplus be used is still not
clarified by the government.
The role of the reserve bank is has been of concern as the whole
transaction puts the autonomy of the bank in a vulnerable position.
year’s transfer from the Contingency Fund has lowered the buffer for excess
transfer of provisions next year. How the transferred funds are used will be
critical for the economy.