Modi govt trying to capture RBI could be catastrophic: Chidambaram

P Chidambaram

"The government stares at a fiscal-deficit crisis". The issue being discussed was for an appropriate economic capital framework.

Kolkata: Senior Congress leader P Chidambaram on Thursday accused the Narendra Modi government of trying to capture the Reserve Bank of India (RBI) to tide over its fiscal crisis, warning that any such move would be catastrophic.

This issue figured in the recent communication between the government and the RBI - and although the government has said it was not asking for a part of the surplus reserve to be transferred to it, the general feeling is that the fixing of a norm is the precursor to a transfer.

There have been reports that the Centre has already thrice asked the RBI to transfer Rs 3.6 lakh crore from its reserves.

India's government is asking the central bank to hand over a part of its surplus reserves to put that to more productive use, an official told reporters in New Delhi. The rift has widened sharply in the past few weeks and will be taken up at the RBI's forthcoming board meeting on November 19.

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Discussions are underway with the RBI to decide the appropriate economic capital framework of the central bank, Subhash Chandra Garg, secretary of the department of economic affairs, said on Twitter. From 2014-15 onwards, the government has succeeded in bringing it down substantially. "We will end FY2018-19 with a fiscal deficit of 3.3 per cent". The government wants to step up the expenditure in an election year. "Government has actually foregone 70000 crore of budgeted market borrowing this year", he tweeted.

These are valuation reserves for dealing with volatility in foreign exchange holdings and government securities, asset development reserves for taking care of depreciation and other asset-related costs, and a contingency reserve to take care of any unforeseen emergencies. "It weakens the balance sheet of the central bank and provides the wrong incentive to the government, as it weakens the incentive to control the rapid expansion of spending and to promote some consolidation of fiscal accounts in 2010".

Sources say that transfer of surplus reserves also figured in the Economic Survey crafted by former Chief Economic Adviser Arvind Subramanian, who batted for RBI transferring over Rs 4 lakh crore to the government.

However, the government clarified earlier today that the above-mentioned reports were a product of speculation and that it had no such demand from the RBI.

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