The Reserve Bank of India (RBI) has boosted the government with Rs 28,000 interim dividend with the national elections two months away. The RBI is following in the footsteps of Turkey’s central bank that aided its government’s cash buffers and improved the flow of liquidity in the economy. Moreover, this is the second such transfer of funds to the Modi-led government.
According to a statement, the Centre has earned a total of Rs 68,000 crore as dividend from the RBI for the 2018-2019 fiscal. Based on a limited audit review and after applying the extant economic capital framework, the RBI said “the board decided to transfer an interim surplus of Rs 280 billion to the Central government for the half year ended December 31, 2018.”
However, the Centre for Advanced Financial Research and Learning (CAFRAL) in its recent study, ‘Central Bank Equity: Facts and Analytics’ highlighted that any conflict between mandated transfers to the government and the residual surplus of the central bank that is available for transfer to the government also has to be met by either drawing down the bank’s capital or by printing additional liabilities (money). It said that the central banks meet these balance sheet risks in a standard way by building capital reserves.
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Last year, the central bank’s then governor Urjit Patel had been at loggerheads with the government in regards to the interim dividend. Now with the money at hand, the government will try to woo the farmers once again through the Pradhan Mantri Kisan Samman Nidhi, with an income of Rs 6,000 per annum for those having two hectares of land.