My View on "RBI transfers almost entire surplus to govt":
“It was reasoned that government should need the fund now which is facing high fiscal deficit that’s needed to be brought down” explains it all. Just as ‘people get the government they deserve’, GOI and RBI get the recommendations they ‘need’ from panels. This is not just a premature, harsh response to the beginning of the gradual weakening of a central bank’s financial strength. Lamenting on the fall of RBI’s aggregate reserves from 11.9 per cent of balance sheet size to 10.1 per cent during the five year period ending June 2013, I had observed as under:
“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 and reserves of RBI after carrying out appropriate amendment to RBI Act. Till such time RBI should be allowed to retain surplus income by transfer to reserves. Considering the size of the 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.”*
*Page 47, Banking, Reforms & Corruption: Development Issues in 21st Century India By M G Warrier(samparkworld@hotmail.
- M G Warrier, Mumbai
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