An unsustainable trajectory | HT editorial
What does the Reserve Bank of India (RBI)’s transfer of ₹1.76 lakh crore to the Union government mean? Many see it as a bonanza for the government, while the Opposition is terming it as a raid on RBI’s reserves. The truth, especially when seen in a historical context, perhaps lies in the middle.
Of the ₹1.76 lakh crore, ₹1.23 lakh crore is RBI’s regular dividend payment to the government. This is an exceptionally high figure going by previous transfers. It is unlikely that the government will get this kind of money next year. The rest of the ₹52.6 thousand crore is a one-time transfer. This is a result of shifting of goalposts on what should be the share of realised equity in RBI’s balance sheet, and therefore, a one-time payment. It is to be noted that the RBI board decided to stick to the lower limit (5.5% to 6.5%) prescribed by the Bimal Jalan Committee, which was formed to look into this matter. This choice has made a difference of more than ₹41 thousand crore going to the government. The government had budgeted ₹90,000 crore in payments from RBI in this year’s budget. The actual amount is almost double this figure. To put this in context, this figure is more than the entire cost of the PM-Kisan scheme.
This is not the first windfall the Narendra Modi government has reaped, or tried to reap, during its tenure. It gained a lot in taxes due to benign oil prices during its first term. There is reason to believe that the expected windfall gains through purged currency notes reducing RBI’s liability were a primary motivation behind demonetisation. Statistics on Goods and Services Tax (GST) collections for 2018-19 show that there was a shortfall of ~1 lakh compare to what was budgeted. This is not a minor slippage, but a windfall loss, or rather, a misplaced windfall gain. Surviving on the fiscal front via windfall gains, and faltering when they do not materialise, has been an integral part of India’s fiscal trajectory in the last few years. This is unsustainable, and avoidable. RBI’s mandate is to pump-prime the economy via monetary policy, while the government has to manage the fiscal front. RBI’s extra transfer this year means it has effectively taken care of the fiscal task as well. This cannot be the norm.