Jalan panel was finalized when Patel was still RBI governor: FM
Jaitley says the government does not need RBI's reserves to meet the 3.3% fiscal deficit target for FY19
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New Delhi: Finance minister Arun Jaitley on Monday said the composition of the expert committee to suggest how the central bank should handle its reserves, and whether it can transfer its surplus to the government, was finalised when Urjit Patel was still the Reserve Bank of India (RBI) governor.
This is contrary to the belief that the composition of the high-level committee for examining the economic capital framework was finalised and a compromise to have a vice chairman in the panel was arrived at after Shaktikanta Das took charge as the RBI governor on 12 December, following Patel’s resignation over his differences with the government
During a debate on the second supplementary demands for grants in the Lok Sabha, Jaitley said he does not need part of the RBI reserves to meet the fiscal deficit target of 3.3% of GDP for 2018-19.
“There were three expert committees set up earlier—in 1997, 2004 and 2013—on how much reserves the RBI should keep. There are many central banks in the world that need only 8% reserves of the assets, while conservative central banks need 14%. The question is does the Indian central bank need 27-28% reserves of its assets?" Jaitley asked.
Blaming the government for Patel’s resignation, Trinamool Congress MP Saugata Roy said the former RBI governor was “polite, humble and had a spine".
Jaitley said part of the RBI reserves can be used to recapitalise public sector banks and eliminate poverty.
“It was decided to constitute an expert committee. The composition of the expert committee was decided when Urjit Patel was RBI’s governor and it has been announced now. The government wants that a decision is taken based on principles with consultation of experts so that it can be operationalised."
Last week, the central bank had set up an expert committee, headed by former RBI governor Bimal Jalan.
Former deputy governor Rakesh Mohan was appointed as the vice chairman of the panel. Other members include RBI central board directors Bharat Doshi and Sudhir Mankad; deputy governor N.S. Vishwanathan; and economic affairs secretary Subhash Chandra Garg. The panel is to submit its report within 90 days of its first meeting.
“[It would] propose a suitable profits distribution policy, taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding less provisions than required," the central bank said in a statement on Wednesday.
The committee will also suggest an adequate level of risk provisioning that the RBI needs to maintain. That apart, any other related matter, including treatment of surplus reserves created out of realized gains, will also come within the ambit of this committee.
RBI data shows that the growth in revaluation reserves has far exceeded the growth in contingency funds.
While revaluation reserves have more than tripled from ₹ 1.99 trillion in 2008-09 to ₹ 6.92 trillion in 2017-18, the contingency fund has grown 50% during the same period from ₹ 1.53 trillion to ₹ 2.32 trillion.
In an interview with Mint on 5 November on the government’s proposal to dip into the RBI’s contingency reserves, Jalan had said the issue hinges on the potential impact of the contingency fund on the rest of the banking sector or the financial sector, and how urgent it is.
“RBI’s responsibility is also to make sure the financial system public sector banks, credit delivery by all the banking system is as desirable as it can be. They have contingency fund in the sense that if there is requirement, then they can meet those requirements to finance the interest of the creditor. The contingency reserve is supposed to enable RBI that without creating money they can finance what is required. For example, exchange rate management," he added.
Jaitley in his reply in the Lok Sabha said the government has made efforts to get farmers minimum support price that is 50% more than their cost.
“I want to make it clear to this house that we will take all possible measures to remove all hardships of the farmers," he added.
The statement holds significance given the political reverses faced by the BJP in the recent assembly elections where the promise of loan waivers by the Congress party is credited to have helped it pocket three states in the Hindi heartland.
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