The Reserve Bank of India (RBI) in its latest currency and finance report raised several issues that directly conflict with the government's position. Firstly, the RBI has argued that it needs to set aside more reserves to strengthen its balance-sheet and support its market intervention. Secondly, it argues that an independent debt management office at the current juncture of high deficit may be a bad idea. The report on currency and finance is basically a report that is brought out by RBI staff belonging to the Department of Economic and Policy Research. So, in that sense it is not a voice of the Reserve Bank of India (RBI) or what RBI stands for..........
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In the context of GOI expectations expressed through showing an expected receipt of Rs44,000 crore as share of profit/dividends from institutions including RBI(Budget 2013-14), this suggestion to take care of RBI's balance sheet strength gains importance.
To ensure that temptations of government emanating from external compulsions do not dilute the strength of RBI’s balance sheet, GOI should take measures to augment the share capital of RBI after carrying out appropriate amendments to RBI Act. Till such time RBI should be allowed to retain surplus income by transfer to reserves. Considering the size of its balance sheet and the internal and external pressures on its income generating capabilities, as also the nature of shocks the Bank has to absorb from time to time, the central bank’s reserves need to be augmented on an ongoing basis.
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