RBI Surplus Transfer to Government

The Reserve Bank of India (RBI) has decided to transfer Rs 1.76 lakh crore to the Central government from its own reserves.

RBI Reserves

The following three funds of RBI constitute the Reserves. They are:

• Currency and Gold Revaluation Account (CGRA),
• Contingency Fund (CF),
• Asset Development Fund (ADF).

The CGRA is the largest and makes up the significant bulk of the RBI’s reserves. The fund is made up of the gains on the revaluation of foreign exchange and gold, stood. The CGRA stood at ₹6.91 lakh crore as of the financial year 2017-18. The CGRA has grown quite significantly since 2010, at a compounded annual growth rate of 25%.

The CF is the next biggest fund, which accounts for ₹2.32 lakh crore in 2017-18. It is funded in large part from the RBI’s profits and is aimed to meet contingencies from exchange rate operations and monetary policy decisions.

The ADF constitutes a much smaller share of the reserves.

Does the transfer adversely impact the RBI?

The transfer does not immediately do any harm to the RBI. But the fact remains that the RBI now has far less wiggle room in the event of a financial catastrophe as its reserves have been reduced to their minimum levels or thereabouts. That is, it has the minimum amount to deal with a crisis, but extra cash always comes in handy.

Since the surplus are reduced to minimal limit, now there is no scope for the government to rely on this source of funding in the near future.

The government in the Budget 2019-20 had already accounted for a transfer of ₹90,000 crore from the RBI, and so the unexpected amount is ₹86,000 crore. This is a one-time bonanza and does not fix the fact that tax revenues both direct and indirect tax are coming in much lower than they need to be nor they are any substitute to the woes of Indian economy.