After the Reserve Bank of India decided to transfer a surplus amount of ₹1,76,051 crore to the Government of India, former Congress president and Gandhi family scion Rahul Gandhi took the opportunity to rebuke the central government saying that the transfer of funds from RBI to the government was akin to stealing from the RBI.
PM & FM are clueless about how to solve their self created economic disaster.
— Rahul Gandhi (@RahulGandhi) August 27, 2019
Rahul proceeded to assert that the transfer of the surplus amount by RBI to the government is equivalent to a robbery. But the fact is, Rahul Gandhi is completely wrong here as the central bank transferring surplus to the government is not an unusual practice. In fact the RBI Act itself has provision for such transfer. The Chapter 4, Section 47 of the Reserve Bank of India Act, 1934, titled “Allocation of Surplus funds” mandates for any profits made by the RBI from its operations to be sent to the centre.
As per the section, the Reserve Bank of India is required by the law to transfer additional excess funds to the centre. Section 47 says that “after making arrangements for bad and uncertain debts, depreciation in assets, contributions to staff and superannuation funds and for all other matters for which provision is to be made by or under this Act or which are usually provided for by bankers, the balance of the profits shall be paid to the central government”.
Moreover, this is not the first time that RBI is transferring surplus to the central government. In 2014 the central bank had transferred Rs 52,679 crore, which was the entire surplus for the previous year. In the previous year, RBI had transferred Rs 33,010 crore to the government, and in 2011-12, Rs 16,010 crore was transferred.
Nevertheless, prone to gaffes, the former INC president likened the authorised action in accordance with the RBI act to purloining. In a bid to taint the BJP government at the centre, Gandhi asserted that the Union government has resorted to stealing from the RBI. However, it was the central bank’s decision to transfer the excess surplus to the government based on the Bimal Jalan Committee recommendations.
The committee recommended that a clearer distinction between the two components of economic capital, realized equity and revaluation balances, should be maintained. They said that realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks.
The ₹1.76 lakh crore to be transferred consists of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637 crore of excess provisions, which were identified as per the revised Economic Capital Framework (ECF) adopted at a meeting of the Central Board of the bank.