No blueprint on reserves

Mumbai: A day after the RBI decided to dip into its coffers to bail out the government, which is fighting an ever-widening slowdown in the economy, Finance Minister Nirmala Sitharaman said that the government has not yet decided how the funds from the central bank will be utilised.

"How the funds will be utilised I can't say right now. The government will take a decision and we will inform thereafter," Sitharaman told reporters while addressing a press conference in Pune.

With Sitharaman not giving the blueprint, experts said the transfer of excess reserves could be utilised for capital formation by investing in infrastructure or enhancing the lending capacity of banks by recapitalising them.

The third objective could be to meet the fiscal deficit targets on which the government is floundering. In the initial minutes of trade on Tuesday, government bonds jumped over 90 paise as reports said the Centre was considering a borrowing cut after the transfer of surplus by the RBI.

The government is scheduled to sell a record high 7.10 trln rupees of bonds in 2019-20 (Apr-Mar). The finance minister devoted much of her press conference to rebutting the allegations of Rahul Gandhi that the government was raiding its own contingency coffers and virtually "stealing" money from the central bank.

Going on the offensive, she said the Congress leader should have had consulted his own past finance ministers before levelling such charges. She also said it was "outlandish" to question the credibility of the Bimal Jalan panel.

"The Bimal Jalan committee consisted of eminent experts and was constituted by the Reserve Bank itself and not by the government. They gave a formula based on which the amount to be transferred was arrived.

Now, any suggestion about the credibility of the RBI, for me, seems a bit outlandish, considering the committee was appointed by the Reserve Bank itself," Sitharaman added.

On the former RBI governor Raghuram Rajan's comments in December 2018 on the likelihood of the RBI's rating getting downgraded if its excess capital are carved out, Sitharaman said

the RBI constituted panel had considered all important aspects, including financial stability and contingency requirements, before coming at its formula, based on which the capital is being transferred.

Meanwhile, Kotak Equities said on Tuesday that the transfer of RBI surplus will only give marginal relief, while the risk to the fiscal remains on account of the expected shortfall in Goods and Services Tax revenues.

Another analyst firm, IDFC AMC, is of the view that any temptation to use this amount towards a "fiscal stimulus" risks regenerating worries around the quality and effectiveness of meeting fiscal deficit targets.

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