With the Bimal Jalan panel report, on what are the excess reserves of the Reserve Bank and how much of it should be transferred to the government awaiting finalisation, yet another warning shot against this ill advised move, has been fired by D. Subbarao, a former RBI governor.
This report is said to be in its last stages of finalisation, after weeding out the heavy dissent note put in by S C Garg, its former member. The appropriate excess reserves of the RBI to be transferred to the government are yet to be finalised and made public.
A fund starved government may want it all and S C Garg wanted it in a single one time payment, but observers say that out reserves of about Rs.9.60 lac crores, about Rs. 3 lac crores could be recommended to be transferred over a period of three years. By taking away over Rs. 1 lakh crores per year from the RBI, in addition to the huge dividend it takes, a financially distressed government is seeking to manage its fisc and fiscal deficit.
The former Reserve Bank governor D.Subbarao, who now teaches at a Singapore University, speaking at a conference said that the raiding of the reserves of the RBI shows a desperate act of the government and that we should be very wary and careful while determining the value of such excess reserves.
He saidthat the government trying to raid the balance sheet of the central bank (RBI in India), anywhere in the world is not a good thing. The former governor also said that international investors look at the balance sheets of the government as well as its central bank and that the same applies to the distress time lending by the IMF too. It is also known that rating agencies too look into the Reserve Bank’s balance sheet, before they assign a sovereign rating to India and such frenzied depleting of the RBI‘s balance sheet will not be prudent for India, in the long run.
These wise words and warning by an erudite and respected former Reserve Bank governor, are unlikely to be heeded to by the government desperate to raise funds, at a time when there is continued stress and slowdown in our economy and tax revenue collections are failing to meet their targets.
But thent is not the first time that this government is resorting to such stop gap desperate measures, instead of initiating the right policy reforms and initiatives to support India’s growth and revive its economy. A few of these kind of measures which are only harming our long term economy are as under:-
- Emptying the pockets of all PSUs to meet disinvestment targets at any cost.
- Recapitalising and bailing out bankrupt banks, instead of stopping political meddling in them.
- Resorting to raising external foreign currency loans.
- Off budget funding to meet budget deficit targets, to conceal the government deficit.
- Demonetisation to combat tax evasion and terrorism.
- Doctoring statistics to prove growth and jobs, which are not there.
- Massive increase in tax rates, forcing tax payers to shift abroad.
- Loans melas to MSMEs, instead of initiating long term corrective reforms.
The unfortunate aspect of it all is that these desperate moves will have adverse intergenerational impact, such that while the present government has an easy way out to manage its finances by depleting our accumulated national savings, and spending away the savings of the government built over past generations, it is leaving an empty bowl for the future ones to fill, with little cushion for calamities.