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LATEST NEWS UPDATES | RBI's bonanza: Fiscal deficit by another name -Aunindyo Chakravarty

RBI's bonanza: Fiscal deficit by another name -Aunindyo Chakravarty

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published Published on Aug 28, 2019   modified Modified on Aug 28, 2019
-Newsclick.in

It’s just a parlour trick to disguise financing of government spending that does not appear in the formal Budget.

We all know by now, that economic activity in this country has come to a grinding halt. That’s not just bad for our earnings, but also for the Government of India (GoI). Because, when people don’t buy or sell things, or even produce them, the government doesn’t get enough taxes. So, economists have been predicting that there’ll be a big shortfall in Modi sarkar’s tax revenues this year.

The problem is that finance minister Nirmala Sitharaman has committed herself to spending more. So, either she cuts back, or she has to raise more cash. The Narendra Modi 2.0 government has been looking at one option of getting more revenue for quite a few years now. This is by getting the Reserve Bank of India (RBI) to transfer a part of its reserves.

Former Chief Economic Adviser to the Modi government, Arvind Subramanian, had made a case for it three years ago. He argued that India’s central bank maintains unreasonably high reserves relative to its balance sheet, second only to Norway. He believed that the RBI could easily handover Rs 2-3 lakh crore to the government, without destabilising its capital.

The RBI then didn’t like this. Urjit Patel, believed to be one of the more pliable RBI governors, didn’t play ball, and his deputy, Viral Acharya, gave a speech – that went viral – pushing for central bank autonomy. Patel didn’t last long and neither did his deputy, Acharya. The stage was set for some of the reserves to be given to the GoI.

Patel’s successor, finance ministry bada babu, Shaktikanta Das, was expected to oblige almost immediately. But, that could have invited bad press. So, another former civil servant-turned-RBI governor, Bimal Jalan, was tasked with the job of deciding how much reserve the central bank should maintain.

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Newsclick.in, 27 August, 2019, https://www.newsclick.in/RBI-Bonanza-Fiscal-Deficit-Another-Name


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