Chidambaram: Why is the Modi govt in a ‘tearing hurry’ to ‘fix’ RBI capital framework?

Former Union finance minister P Chidambaram on Sunday, November 11, asked the Centre why it was in a “tearing hurry” to “fix” the framework of the Reserve Bank of India especially when the government has only four months to complete it term.

In a series of tweets, the senior Congress leader slammed the government for allegedly seeking funds from the RBI despite claiming that its (Centre) fiscal math was correct.

“The NDA government has completed 4 years and 6 months of its term. It has effectively 4 months left. What is the tearing hurry to ‘fix’ the capital framework of RBI” he said.

Chidambaram said if the Government did not need any more money this financial year, why was it “mounting pressure” on the central bank in the last four months of its tenure. “Why did it keep silent for 4 years and 6 months?” he said.

The Congress leader said the Government had claimed that its “fiscal math is correct” and “boasts” that it had given up ₹70,000 crore of borrowing for 2018-19. “If so, why does it need money from the reserves of RBI this year?” he said. The Central Government had on Friday said it was discussing an “appropriate” size of capital reserves that the central bank must maintain, but denied seeking a massive capital transfer from the RBI.

The RBI has a ₹9.59 lakh crore reserves and the government, if reports are to be believed, wants the central bank to part with a third of that fund — an issue which along with easing of norms for weak banks and raising liquidity has brought the two at loggerheads in recent weeks.

Earlier, in an interview with National Herald, Chidambaram had stated the government wanted to control the RBI. It wanted to make the RBI a Board-controlled entity. “The government is eyeing the reserves of the RBI and wants at least ₹1 lakh crore to fund its election year expenditure and to meet its fiscal deficit target (which is looking increasingly difficult),” said Chidambaram.

Economic Affairs Secretary Subhash Chandra Garg took to Twitter on Friday to clarify that the government was not in any dire need of funds and that there was no proposal to ask the RBI to transfer ₹3.6 lakh crore.

“There is no proposal to ask RBI to transfer (₹) 3.6 or (₹) 1 lakh crore, as speculated,” he tweeted. “Government’s FD (fiscal deficit) in FY 2013-14 was 5.1%. From 2014-15 onwards, Government has succeeded in bringing it down substantially. We will end the FY 2018-19 with FD of 3.3%. Government has actually foregone (₹) 70,000 crore of budgeted market borrowing this year,” Garg said.

The official said the only proposal under discussion was to “fix appropriate economic capital framework of RBI”.

Economic capital framework refers to the risk capital required by the central bank while taking into account different risks.