Law doesn't allow transfer of RBI reserves to govt: YH Malegam

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"The government stares at a fiscal-deficit crisis".

Arvind Subramanian, former chief economic adviser to the government, had argued in his Economic Surveys that the central bank was sitting on too much capital and "assuming that the RBI returns four trillion rupees of capital to the government" it could be put to productive use.

RBI and the central government are now involved in a standoff and according to various reports, a major bone of contention between the two is that the government wants the central bank to part with a third of its Rs 9.6 lakh crore reserves.

If RBI governor Urjit Patel stands his ground, the Centre is planning to issue a direction under Section 7 of the RBI Act, 1934, directing the apex bank to transfer Rs 1 lakh crore to the government's account, he claimed. That framework is used to decide the adequate amount of reserves the central bank should maintain.

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"Government's FD (fiscal deficit) in FY 2013-14 was 5.1%".

Garg categorically refuted the reported proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, saying that the only proposal that was under discussion by the government and the RBI was regarding fixing an appropriate economic capital framework of the RBI. From 2014-15 onwards, the government brought this down substantially. "The government has actually foregone ₹70,000 crore of budgeted market borrowing this year", he emphasised. The statement from North Block comes ahead of the RBI's November 19 board meet, which is expected to take up the unfinished agenda of last month's meeting that had ended in a stalemate.

A top finance ministry official on Friday put to rest speculation that the Centre was insisting on drawing a larger share of the Reserve Bank of India's reserves than the central bank is willing to part with. The government wants to step up the expenditure in an election year.

According to the RBI annual report, surplus reserves as on June 30, 2018 were about ₹9.63-lakh crore. "It weakens the balance sheet of the central bank and provides a wrong incentive to the government, as it weakens the incentive to control the rapid expansion of spending and to promote some consolidation of fiscal accounts in 2010".

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