The Ministry of Finance has clarified that it isn't seeking Rs 3.6 lakh crore excess capital from the RBI's reserves. Taking to Twitter, Department of Economic Affairs (DEA) Secretary Subhash Chandra Garg said so in as many words, quelling reports that the government had initiated consultations under Section 7 of the RBI act seeking transfer of a third of the central bank's almost Rs 9.5 lakh crore reserves in order to help meet India's fiscal deficit target.
He did add, however, that the government was discussing ways to fix an appropriate economic capital framework for the RBI, perhaps in an effort to enhance the scope of what is possible with regards to the RBI's reserves.
Calling media speculation around the government's fiscal deficit target 'misinformed', Garg put out numbers, saying that since the UPA's final year, when the fiscal deficit was 5.1%, the Modi government had succeeded in bringing it down substantially. He put forth that India would end FY 2018-19 by meeting its fiscal deficit target of 3.3% of GDP and revealed that the government has actually foregone Rs 70,000 crore of budgeted market borrowing in the year.
The matter of purportedly transferring 'excess reserves' was said to be one of the main points of contention between the government and the RBI, along with the central bank's prompt corrective action-based lending restrictions on certain NPA-ridden banks. RBI deputy governor Viral Acharya had revealed as much in his recent speech which brought the disquiet between India's monetary and fiscal policy-makers to the fore.
The Opposition had also jumped on the matter, questioning the reasoning behind seeking the RBI's reserves and attributing the same to election-based populist measures and an alleged effort to circumvent the RBI's autonomy. However, others had also pointed out that the RBI's equity is held by the government, and that the RBI's provisioning could be brought in line with other central banks thereby freeing up its reserves. The matter is hardly a new one, with former CEA Arvind Subramanian also highlighting that the RBI was highly capitalised and there was no reason why the excess capital should be kept with it.
However, former Finance Minister P Chidambaram has questioned the government on the 'proposal to fix appropriate economic capital framework of RBI', tweeting the following: