MIDST allegation of Opposition parties that India’s economy is not bad shape, The Reserve Bank of India, the country’s central bank, has announced to transfer a record Rs 1.76 lakh crore — higher than the aggregate dividend paid out by it in previous three years – to the NDA government for tackling the slowdown in the economy. Finance Minister Nirmala Sitharaman has already a slew of measures for boosting the economy and creating investor ‘confidence. RBI has taken the decision on the recommendations of the Bimal Jalan committee. Jalan was RBI Governor. Out of this total sum, Rs 28,000 crore has already been paid as an interim dividend and has been accounted for by the budget in the previous financial year. Given the expected revenue shortfall in a slowing economy especially against the aggressive targets set by Finance Minister Sitharaman maiden Budget presented last month, the windfall from the RBI may be used to trim borrowing, help fund Rs 3.3 lakh crore capex plan, capitalize banks and provide fiscal stimulus to some stressed sectors , PTI reports quoting some economists. While the finance ministry seeking higher payouts from the RBI was said to be one of the reasons that led to Urjit Patel’s abrupt quitting as Governor in December last year, Das-led RBI board has transferred sums that is said to be far more than the stimulus pumped by some G20 nations into their economies during the decade-old global financial crisis. This comes at a time when the economic growth rate has slumped to a five-year low after accelerating in the first few years of Modi 1.0 regime. Consumer spending has slowed, private investment hit a bump, the auto sector is facing the worst crisis in two decades leading to tens of thousands of job losses, real estate sector has seen piling of unsold inventories and fast-moving consumers’ goods (FMCG) companies have seen a decline in volume growth. While the finance ministry has so far not detailed the blueprint of using the surplus from the RBI, experts said the transfer especially the excess reserve of over Rs 50,000 crore could be utilized for capital formation by investing in infrastructure building or enhancing the lending capacity of banks by recapitalizing them. “If the government chooses to convert the transferred sum into higher spending, we believe it would tilt more in favour of infrastructure spending rather than consumption,” Emkay, a brokerage, said in a research report. Overall, this event should support markets in the short term due to additional support from the RBI to the government, it to the last three years,” it said. The government may be able to contain its fiscal deficit at 3 per cent of gross domestic product (GDP) in 2019-20 (FY20) following the Reserve Bank of India (RBI)’s surplus transfer, The Business Standard reports quoting official sources. “The government will be able to reduce the fiscal deficit by 0.3 percentage point this fiscal year thanks to the RBI’s transfer of Rs 1.76 trillion,” the official said, requesting anonymity. Alternatively, the government may use the surplus funds to provide a stimulus package to revive economic activity, BS added. Jalan said the current slowdown in the Indian economy is cyclical and growth will pick up in one or two years.The government has already announced many reforms, and it is now a question of implementation, particularly in terms of investment.“The slowdown in the growth is cyclical. In one or two years, I am sure, there will be a turnaround,” he told PTI in an interview.
Jalan also pointed out that the situation today is very different from 1991 when the country faced a severe economic crisis on the external front.“India is in a very strong position today, unlike in 1991. If you look at our inflation rate, it’s quite low. If you at look at our reserves, it’s quite high,” he said . Last month, the IMF and Asian Development Bank (ADB) had cut India’s growth forecast citing global and domestic headwinds. As IMF’s latest projection, the Indian economy is estimated to grow at 7 per cent in 2019 and 7.2 per cent in 2020. The Asian Development Bank had also lowered India’s GDP growth forecast to 7 per cent for the current year on the back of fiscal shortfall concerns. Asked why the private sector still not investing, Jalan said, “It may be due to post-demonetization effect or maybe they were waiting for (Lok Sabha) election results.”On overseas sovereign borrowings, he said they should be long term.