The Bimal Jalan panel, which was set up to examine the Reserve Bank of India's (RBI) economic capital framework (ECF), would recommend the transfer of the central bank's excess reserves to the government over a period of three-five years, a source privy to the development told FE.
The panel held its last meeting on Wednesday and is learnt to have retained its major recommendations despite a change in its composition after new finance secretary Rajiv Kumar had replaced Subhash Chandra Garg as a member.
This means the revenue-hungry government is unlikely to gain a windfall in one go, but it will still reap financial dividends over the medium term even though the transfer would be lower than its initial expectations. Another source said Kumar, who first attended the panel's meeting on August 5, hadn't yet withdrawn dissenting views expressed earlier by Garg. "The RBI will now decide on what to do with the dissenting views," said one of the sources.
Before he was shifted to the power ministry late last month, Garg had dissented on the panel’s recommendations, as he wanted the ECF review to result in much higher transfer of the central bank's surplus to the government. Garg had reservations on the methodology endorsed by some other members of the panel to arrive at the size of the RBI's "surplus", and also wanted the entire transfer in one go.
The panel's report will be edited and submitted to the central bank in the next few days, said one of the sources. The latest FY20 Budget has pegged RBI's dividend at Rs 90,000 crore against Rs 68,000 crore in the last fiscal, even without factoring in the ECF review.
The surplus transfer could help the government tide over any potential shortfall in its tax revenue and contain fiscal deficit unless the panel ties the transfers to specific use like retiring public debt or recapitalisation of state-run banks. As such, the government's reliance on the RBI's dividend has risen in recent years, given the need to allocate more to welfare schemes like PM-Kisan, even as tax collection, especially of GST, has trailed targets. A recent report by Bank of America Merrill Lynch said the Jalan committee could identify an excess buffer of up to `3 lakh crore (or roughly 1.5% of the GDP).
The ECF, which determines the central bank's surplus transfer to the government, was one of the contentious issues in the much-hyped tussle late last year between the finance ministry and former RBI governor Urjit Patel. During Patel's tenure, RBI's surplus transfer (as % of its net disposable income) dropped to 70-78%, against 100% during Raghuram Rajan's period.
Last year, the finance ministry held that the buffer of 28% of gross assets maintained by the central bank was much higher than the global practice of around 14%. Following this, the RBI central board, in its meeting on November 19, 2018, had decided to set up a panel to examine the ECF. Brokerage firm UBS recently said: "A staggered dividend of $10 billion a year, rather than a one-shot $30 billion, is our base case."
In February, the RBI decided to offer an interim dividend of Rs 28,000 crore to the Centre, driving up its total transfer in the last fiscal to Rs 68,000 crore. The elevated transfer under new governor Shaktikanta Das seems like a departure from the RBI's policy during the Patel era. In 2017-18, the RBI had transferred Rs 40,659 crore (including an interim dividend of `10,000 crore in March 2018).
As of June 30, 2018, the RBI's contingency and asset development funds aggregated Rs 2,54,919 crore. These funds have been created by transfers from the central bank's income account and are in the nature of provisions for contingencies. The amounts held in CGRA stood at Rs 6,91,641 crore at the end of June 2018.
The Economic Survey for 2015-16 (under then chief economic advisor Arvind Subramanian) had suggested that the RBI's excess capital could be redeployed to infuse funds into state-owned banks and help them provide more for bad assets and step up lending.
Apart from Jalan and Kumar, the other members of the panel are Rakesh Mohan, former deputy governor of RBI (vice-chairman), RBI deputy governor NS Vishwanathan, and two RBI central board members - Bharat Doshi and Sudhir Mankad.