RBI, Government on the same page now

The Narendra Modi government has been cruising along at great speed after the Lok Sabha elections in various fields, taking advantage of the disarray in which the Opposition finds itself.

While the long-pending triple talaq bill and the momentous reorganisation of the Jammu and Kashmir region including Ladakh are done with after abrogating Article 370 of the constitution, the latest are the economic stimulus to industry to shake off sluggishness and now the implementation of the proposal to transfer a surplus of Rs 1.76 lakh crore to the national exchequer from the Reserve Bank of India.

The transfer includes Rs 1.23 lakh crore of RBI surplus for 2018-19 and Rs 52,637 of excess provisions identified under a revised Economic Capital Framework adopted by the RBI.

That kind of provisioning was a subject of sharp criticism before the elections but in the changed circumstances it has had a smooth sailing. It was indeed a clever move to bring in the Bimal Jalan committee to clothe the transfer of Rs 1.76 crore in acceptable terms.

While Jalan is a much-respected former RBI Governor, he has sensibly steered clear of raiding RBI’s capital to fund the central government’s financing programme. Both the RBI and the government have come out trumps together in this exercise which is quite significant.

If the Modi government had got the right to appropriate the RBI surplus only to whittle down its fiscal deficit, that would have been nothing to gloat over, but we now have a commitment that there is major capital expenditure lined up to kick-start the economy which has been slipping towards recession.

This is a potential infusion and must be welcomed because capital investment has been a big casualty in the slowdown. Coupled with the upfront infusion of Rs 70,000 crore into public sector banks announced last week, this impending spending push from the Centre could be the stimulus to counter the economic slowdown.

If, as Finance Minister Nirmala Sitharaman has promised, the recent round of fiscal stimulus is followed by more such stimuli, the combination of measures could well see the country out of the woods, albeit gradually, at a time when much of the world would be grappling with the onset of recession.

There surely are some risks involved in leaving it to the Centre to direct these funds for optimal utilisation considering that the best use was not made of disinvestment proceeds in the past and of the cess raised on various counts.

But the risks are worth taking. There surely have been some well-known critics of excess funds transfer to the government, the most notable of whom was Governors YV Reddy and D Subba Rao.

It is to be hoped that their analogy based on the Argentinian experience would prove not so relevant to today’s environment and for the sake of the economy the Bimal Jalan optimism would be borne out.

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