Transfer funds boost regulatory autonomy

Transfer funds boost regulatory autonomy

We endorse the suggestion of a committee headed by former Reserve Bank of India (RBI) governor Bimal Jalan, tasked with determining how much of reserves RBI needs, to take a gradualist course, phased over three-to-five years, to transfer some of RBI’s surpluses to the government. RBI now holds about ₹9.8 lakh crore as reserves, about 28% of gross assets. The government wants a big chunk of this, presumably to recapitalise India’s fragile banking sector. New Delhi says globally central banks keep only about 14%, and so the Old Lady of Mint Street can afford to relax the grip on purse strings. Two previous governors, Urjit Patel and Raghuram Rajan, disagreed with the government on this issue.

We do not know as yet the quantum of funds the Jalan panel reckons may be transferred to government, but its gradualism is welcome. The world economy is on a knife edge, thanks to the US-China trade war, which may escalate into a currency contest. Renewed sanctions on Iran have made oil markets volatile and India’s stagnant real and financial sectors show little sign of life. RBI should have enough ammunition at hand to backstop any crisis in banks or raids on the rupee.
v The government has made a similar demand from market regulator Sebi and wants it to shift 25% of its surplus into the Consolidated Fund of India (CFI). It also wants Sebi to seek government permission before making new investments or capital spending. Sebi is right to oppose infringement of its financial autonomy. Its charges on regulated entities would resemble a tax only if the Centre, rather than Sebi, were to set these charges. It makes sense for Sebi to transfer a good part of accumulated reserves to the government, retain financial autonomy and reduce its fees and charges, to trim its collections.