Jalan Panel bats for lowering of RBI reserves

The panel’s recommendations will balance the issue of growth and monetary function.

BCCL
RBI gave a record interim dividend of Rs 28,000 cr to the government after Shaktikanta Das took over.
The new government that takes office post May 23 is set to be pleasantly surprised. Sources told ETNow that the Bimal Jalan panel, reviewing the economic capital framework, is likely to recommend lowering of RBI reserves.

The amount of reserves the central bank can keep was a contentious issue between the government and RBI, which les to the stepping down of former RBI governor Urjit Patel in December last year.

“The panel’s recommendations will balance the issue of growth and monetary function. It will look at the way reserves were used during the Asian Crisis of 1997 and the Lehman Crisis of 2008,” sources in the know of the development said.


The Jalan panel will submit its report by June and could recommend transferring the reserves to the central government over a course of 4-5 years.

“Any central bank has to come up with a consensus on what is the optimum level of reserves and transfer the rest to the central government over a period. Immediate transfer could be inflationary in nature,” the source said.

“As long as the recommendations are prospective in nature and not retrospective, the consequences of the recommendations of the Jalan panel should not be too difficult to handle. Any transfer of reserves that is prospective will not rock the boat as far as the economy is concerned but transfer of reserves on retrospective basis would mean shrinking of RBIs balance sheet could have grave impact on the economy,” said ET Now’s Consulting Editor Mythili Bhusnurmath.
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At a time when growth is sputtering, consumption is weak and extravagant promises have been made by political parties this election season, higher funds from central bank could aid the government’s finances.

RBI gave a record interim dividend of Rs 28,000 cr to the government after Shaktikanta Das took over after a public standoff over RBI's independence led to a change at the top of the central bank.

"The panel was set up as discussion on the reserve issue has been pending for years. We are not saying give the funds to us and we will tell you how should the funds be used, but discussions on monetary and fiscal issues are important," the second official said.
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