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RBI reserve should be used to fix financial system: Subramanian

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Bengaluru: The Reserve Bank is adequately capitalised, but the money should be used for fixing the financial system, not for financial deficit or financing government expenditure, Former Chief Economic Advisor Arvind Subramanian has said.

The economic principles, moreover, say savings should not be used for current consumption, but for long-term investment, he said Thursday.

“If the reserve is used for deficit financing that would amount to raiding RBI and I would be extremely dissatisfied and disappointed with it,” he said, adding the central bank probably is massively capitalised, but the money should be used for fixing the financial system, not for financial deficit or financing government expenditure.

 

“Also, it should be done cooperatively, not adversarily,” he added. He further said the government could have found a way to solve its differences by setting up a panel, which hopefully would have shared the belief of not using the RBI reserve for deficit financing.

The Reserve Bank of India (RBI) has Rs 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 recently.

Responding to a PTI query on the comments on RBI Board Member Swaminathan Gurumurthy’s induction, he said: “I think, he (Gurumurthy), amongst others, has articulated new alternative conceptions. I think, we have to engage with that to run an economy. All of us, me included, would plan to engage with that vision. I promise I will engage with that”.

Gurumurthy should try avoiding being a party to build a perception of politicising RBI board appointments, the former CEA said.

Subramanian was in the city to read some the excerpts from his book – Of Counsel: The Challenges of the Modi-Jaitley Economy. On the Swadeshi vs Videshi debate, he said both extremes should be avoided because finance theory talks about diversification.

“India needs a portfolio. You get your Swadeshi and Videshi economists, but evaluate them on their merits. Finance theory talks about diversification,” the former CEA said.


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ADB cuts India’s FY20 GDP growth forecast to 7% on fiscal shortfall worries

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New Delhi: Asian Development Bank on Thursday lowered India’s GDP growth forecast to 7 per cent for the current year on the back of fiscal shortfall concerns.

“India is expected to grow by 7 per cent in 2019 (FY20) and 7.2 per cent in 2020 (FY21), slightly slower than projected in April because the fiscal 2018 outturn fell short,” ADB said in its supplement to the Asian Development Outlook 2019.

For the south Asian region, ADB said the outlook remains robust, with growth projected at 6.6 per cent in 2019 and 6.7 per cent in 2020.

 

Earlier in April this year too, the Manila-based multi-lateral funding agency had lowered India’s growth forecast for FY20 to 7.2 per cent from 7.6 per cent estimated previously due to moderation in global demand and likely shortfall in revenue on the domestic front.

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Jalan panel proposes ‘nominal’ transfer of RBI funds to govt over 3-5 years

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New Delhi: The Union government may not get the windfall gain it was expecting from the Reserve Bank of India (RBI) reserves as the Bimal Jalan committee, tasked with reviewing the central bank’s economic capital framework, has proposed a “nominal” transfer of surplus to the central government in a phased manner, according to a source in the know.

“The report has proposed a formula for a nominal transfer of a portion of the RBI’s reserves to the central government in a period of three-five years. This is in line with the current practice being followed by the RBI for transferring dividend annually,” a person close to the development said.

The person said the panel members might “not be unanimous” on the suggestions the committee made. These will be submitted to RBI Governor Shaktikanta Das “in a few days”. The RBI’s central board, headed by Das, will take up the matter.

 

The report would likely include a dissent note by Finance Secretary Subhash Chandra Garg, who is the government’s representative on the panel.

The committee has recommended a periodic review of the RBI’s economic capital framework, according to the source.

Initially, the finance ministry had expected around Rs 3 trillion from the RBI’s reserve funds, which were at the heart of a conflict between the regulator and the government last year.

On the insistence of the finance ministry, the central board of the RBI formed a six-member committee — headed by Jalan and co-chaired by former RBI deputy governor Rakesh Mohan — in December to review the central bank’s economic capital framework.

The main difference of opinion within the panel was over transferring the RBI’s “excess” capital reserves. While most panel members are in favour of a phased transfer of the RBI’s capital reserves to the government over the years, the government’s view, voiced by Garg, was for a one-time transfer.

For this financial year, the government had accounted for around Rs 20,000 crore as “additional dividend” from the RBI, a finance ministry official said. This, the official said, is unlikely to happen.

In the Receipts Budget, allocation towards the “dividend or surplus of RBI, nationalised banks and financial institutions” was increased by Rs 23,130 crore to Rs 1.06 trillion in 2019-20, compared to the Interim Budget.

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Nod to bankruptcy code changes, will help home buyers

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New Delhi: The government today gave its approval to seven amendments to the Insolvency and Bankruptcy Code (IBC), a move that will benefit unsecured creditors like home buyers in a big way.

Minister for Information and Broadcasting Prakash Javadekar said, the IBC (Amendment) Bill, 2019, would be introduced in Parliament during this session and will have retrospective effect. An official statement read: “The amendments aim to fill critical gaps in the corporate insolvency resolution framework as enshrined in the Code.”

of all financial creditors, including unsecured ones (home buyers) covered under Section 21 (6A) “shall be cast in accordance with the decision approved by the highest voting share (more than 50 per cent) of financial creditors on present and voting basis”, it said. It also said greater emphasis had been given “on the need for time-bound disposal at application stage and a deadline for completion of CSRP within an overall limit of 330 days, including litigation and other judicial processes”. Experts say this provision will help unsecured creditors (mostly home buyers) in a big way.

 
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