Why Did RBI Approve To Transfer Emergency Funds To Govt.

RBI fund transfer

RBI fund transfer: On the previous Monday, the Reserve Bank of India (RBI) approved the Bimal Jalan committee’s proposal and approved to transfer 1.76 Lakh Crore from its reserves to the central government lead by Narendra Modi (RBI fund transfer). This is the highest transfer in the history of Reserve Bank and they approved Rs 500 billion of the dividend, and this financial year is 2.5 times greater than the previous year.

The reserve bank in known as the bank of banks and has the highest authority as it can impact the Indian Economy. From the total reserve of the RBI, they have to keep 70% as the annual dividend, and the surplus transfer to the Union Government on regular basis as the budget of financial year (RBI fund transfer to government). Apart from this, the remaining 30% is the contingency fund that they have to store for emergency situations.

The 1.76 Trillion which the RBI has approved contains this contingency fund as well. Though is it good for the government to have more funds to spend for public welfare, but there are some people who believe it would affect the Reserve Bank of India because it might reduce the value of their investments.

The former RBI Governor Bimal Jalan headed a committee which allowed the union govt to access the contingency funds, and the Central Bank also approved the suggestion, therefore, transferring Rs 1.76 Lakh Crore considering the recession and emergency like situation.

RBI fund transfer: What Has Led To The Emergency Situation?

The Govt of India has encountered the cash crunch situation as the GST system is not very beneficial and there is a huge gap between the tax collection of 2018-2019, and the budget estimate of 2019-2020. It is the biggest gap any govt has faced in Indian History. The is the reason India is facing the biggest economic slowdown because there are less hopes of the increment in tax revenues, and that is the reason the country need government’s interference to recover India from the economic slowdown situation.

Why Did The RBI Approve To Transfer 1.76 Trillion To Govt?

The BJP Govt. was eyeing on the RBI reserves for a long time but the Bank had no plans to do so, that is the reason the Modi government appointed a committee, and assigned the former governor Bimal Jalan to present a report if resealing the contingency fund would affect the RBI, and how much amount is essential for the RBI to hold for emergency. The Central govt of India did pressurize the RBI fund transfer to the government because they have the largest reserves and is 14% above the norms set by the World Bank for Central Banks of any nation. This is also the reason why RBI governor Urjit Patel resigned from his post in 2018.

The Government Pressurized RBI! But Why?

According to the Indian govt, the reserves in the bank are larger than any other country, and taking some of these funds would not affect the bank and its working as suggested by Arvind Subramanium (Chief Economic Advisor). He argued that the Reserve Bank of India “has some of the highest reserves in the world and the excess capital the Reserve Bank of India could transfer to the Union government stood at between Rs 4.5 trillion and Rs 7 trillion.”