RBI proposes changing financial year to help surplus transfer to Centre
The Reserve Bank of India’s (RBI) Board on Saturday recommended aligning the financial year of the central bank (July-June) with that of the government’s fiscal year (April-March) from 2020-21 in order to provide better estimates of the projected surplus transfers to the government for budgeting purposes.
“The Board recommended aligning the financial year of RBI, currently July-June, with the Government’s fiscal year (April-March) from the year 2020-21 and approved forwarding a proposal to the Government for its consideration,” it said in a statement.
The proposal was moved at the 582nd meeting of its Central Board of Directors in New Delhi that also witnessed a customary post-budget address by the finance minister Nirmala Sitharaman.
The finance minister in her address “outlined the thinking behind the Union Budget 2020-21 and the focus areas of the Government. The Finance Minister indicated increased complementarity in policy between the RBI and the Government to address growth concerns,” it said
Also Watch | Projected growth of 6% for next year: RBI Governor at post-budget meeting
The decision to align RBI’s financial year with government’s fiscal year is in sync with recommendations of the Bimal Jalan Committee report, two officials with direct knowledge of the matter said requesting anonymity.
The Committee, which submitted its report in August 27, 2019, said, “With regard to distribution of interim dividend, the Committee recommends that the RBI accounting year (July to June) may be brought in sync with the fiscal year (April to March) from the financial year 2020-21”. The RBI, in consultation with the Union government, had constituted a six-member expert committee to review “the Extant Economic Capital Framework” of the central bank.
“Historically, the July-June year would have been linked to the agricultural seasons, which is not a consideration in these times. The benefits from such a transition are manifold,” it said.
According to the report, the RBI would be able to provide better estimates of the projected surplus transfers to the government for the financial year for budgeting purposes. “It could reduce the need for interim dividend being paid by the RBI. The payment of interim dividend may then be restricted to extraordinary circumstances,” it said.
The committee said that the transition to the April-March year would also bring about “better cohesiveness” in monetary policy projections.
The Central Board of the Reserve Bank of India (RBI) in August last year decided to transfer a sum of Rs 1,76,051 crore to the Central government comprising of Rs 1,23,414 crore of surplus for 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF).
The revised ECF was calculated on the basis of recommendations by an expert panel under the chairmanship of former RBI governor Jalan. The Jalan committee was constituted on December 26, 2018 to resolve differences between the government and the central bank over RBI’s reserves. The total reserve of the RBI at that time was about Rs 9.6 lakh crore. The Centre felt that the RBI was more than adequately capitalized; hence it should pass on the surplus to the government.
The RBI has a statutory mandate under Section 47 of the RBI Act that its profits shall be transferred to the government, after making provisions. The Jalan committee was asked to review the justification of various provisions, reserves and buffers of the RBI in lines with global best practices.