Government gets Rs 1.76 lakh crore surplus transfer from the RBI

The Indian Government has received a massive boost from the RBI as the RBI has agreed to transfer over Rs. 1.76 lakh crores.?

What has happened?

  • The Bimal Jalan committee had recommended the transfer of the surplus funds held by the Reserve Bank of India (RBI).
  • While Rs 28,000 crores had already been paid as an interim dividend by the RBI to the Centre in the last financial year, it will pay the balance in the current financial year.
  • This amount, to the tune of Rs 1.48 lakh crores will help the government make up for the shortfall in the tax collections.
  • While many were expecting this payment to be a staggered payment, it is a one-off payment and the government will use this money towards its crucial needs.
  • However, after this fund transfer, the RBI is left with little contingency fund and the funds of the RBI are at the lower band of the desired 5.5-6.5% of the total balance sheet.
  • This leaves RBI with very little wiggle room in managing its funds.

Reserves of the RBI

  • The current reserves of the RBI consist of the 4 accounts – currency and gold revaluation account (CGRA), the investment revaluation account, the asset development fund (ADF) and the contingency fund (CF).
  • A major chunk of the reserves is made up by the CGRA which has gone up greatly since 2010 and has grown at a compounded annual growth rate (CAGR) of 25% to Rs 6.91 lakh crore in 2017-18.
  • The CGRA is the reflection of the unrealized gains or losses on the value of forex and gold.
  • The CF constitutes over a 1/4th of the RBI?s reserves and the RBI makes a contribution of parts of its profits to the CF.
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