Modi govt may receive RBI’s Rs 1.76 lakh crore booster shot today itself

A one time transfer of Rs 1.76 lakh crore from the RBI will provide much needed money to the Modi government to kick-start a slowing economy.

In a big relief to the Modi government, Reserve Bank of India has not only accepted the recommendations of Bimal Jalan Panel to transfer a huge sum of Rs 1.76 lakh crore to the Union government but the RBI is also implementing the decision forthwith. According to a senior RBI official, this huge sum will be credited to the Union government’s books of accounts today, just a day after the approval of the Bimal Jalan panel’s recommendations by the Bank’s Central Board.

“RBI central board accepts Bimal Jalan Committee recommendations and approves surplus transfer to the government, said the Reserve Bank in a statement issued on late Monday evening.

“I think tomorrow (Tuesday) it should reflect in the government’s books,” a senior Reserve Bank official confirmed to Financial Express Online that this huge amount of money will be shifted from the Reserve Bank’s balance sheet to Consolidated Fund of India on Tuesday.

Reserve Bank’s decision to transfer this huge amount in one go comes as a big relief for the Modi government that is desperately looking for funds to kick-start a slowing economy as Prime Minister Modi aims to make India a $5 trillion economy in the next five years. It requires a sustained GDP growth rate of over 9% for the next five years to emerge as $5 trillion economy from present $2.7 trillion.

A staggered payment by the RBI would not have provided the kind of headroom finance minister Nirmala Sitharaman was looking to script an economic turn-around as GDP growth rate hit a five year low of 5.8% in the fourth quarter of FY 2018-19, lowest in the last five years.

Recent reports of a slowdown in automobile, FMCG and real estate sectors coupled with unprecedented crisis in India’s shadow banking industry forced the government to announce a stimulus package within two months of presentation of first budget of PM Modi’s second term. This record transfer of Rs 1.76 lakh crore from the RBI in one go will help the government to increase investment without breaching the fiscal deficit target.

“You know, there is no timeline (to complete the transfer) as it is one time transfer,” said the official adding that the process only involves updating the entries in relevant records. It comes as a huge relief for the government as payment of this amount in tranches would have delayed the government’s plan to scale up expenditure for the remaining part of this fiscal.

In November last year, the Reserve Bank of India constituted an expert panel under the chairmanship of former RBI governor Bimal Jalan to decide the tricky issue of transfer of the RBI’s surplus fund to the Union government.

Jalan panel was formed following the premature departure of then RBI governor Urjit Patel last year who was at odds with the government’s proposal to transfer a substantial amount of the bank’s surplus funds to contain its widening fiscal deficit.source