Relevance : GS Paper III (Economy)
Theme of the article
A framework agreement on capital, surplus transfers from RBI to government will smoothen ties between the two.
Surplus transfers by the RBI
- The RBI has agreed to transfer an interim dividend or surplus profits to the government.
- This surplus transfer is a reflection on fiscal management and government finances.
Is the demand of surplus transfer by the govt justified?
- As the owner or controlling shareholder, government can seek a return on the capital deployed.
- But a distinction needs to be made in case of central bank due to its role in monetary and financial stability.
- In the risk environment, banks should be equipped to build strong capital buffers as a cushion.
Way forward
- Bimal Jalan committee is now reviewing RBI’s economic capital framework.
- A similar legislative framework on surplus transfer can help narrow differences between RBI and the government.
