5 Reasons Why RBI Transferring Rs 1.76 Lakh Crore Surplus to GoI is OK

1. Sovereign Guarantee: The central bank is a unique institution; it is backed by the faith reposed on it by the the Central government, and therefore, a huge amount of reserves with the central bank is in the nature of idle cash which could have been utilised more productively in the economy.
2. RBI most capitalized central bank in world: The Economic Survey of 2016-17 found that the RBI is one of the most capitalised central banks in the world and noted, “There is no particular reason why this extra capital should be kept with the RBI”. Later, the former Chief Economic Adviser, Arvind Subramanian in his book Of Counsel: The Challenges of the Modi-Jaitley Economy (2018) has caricatured the syndrome of treating the government’s capital at the RBI by RBI officials as “prudence or paranoia”.
3. Based on Jalan Committee Reco: Jalan committee does not seem to have compromised on arriving at the economic capital framework of the RBI and has calculated the extent of excess capital of the RBI under a set of fairly standard and conservative assumptions.
4. Helpful for Recapitalisation: When the spectre of a slowdown is looming large and when channels of credit disbursements are choked because of a lack of capital with the commercial banks — a transfer of such additional money to the government could enable the government to go in for bank recapitalisation in a big way and would be good for the economy.
5. Help maintain budget discipline: The transfer of the additional surplus from the RBI could enable the government to pursue efforts towards stimulating the economy while maintaining budget discipline. Remember, in pursuing the fiscal stimulus of 2007-08, fiscal deficit went up from 2.5% to 6%.