Bimal Jalan panel report may contain dissent note by Subhash Garg

The committee defers report on RBI's reserves transfer yet again; will submit it after the Budget

The Bimal Jalan committee, tasked with reviewing the economic capital framework of the Reserve Bank of India (RBI), has deferred the submission of its report to the central bank for the third time. The panel will meet again in mid-July, after the presentation of the Union Budget on July 5.

Also, Business Standard has learnt that the report would likely include a dissent note by Finance Secretary Subhash Garg, who is the government’s representative on the panel.

The main difference of opinion within the six-member panel is over the transfer of the RBI’s “excess” capital reserves. While most panel members are in favour of a phased transfer of the RBI’s capital reserves to the government over the years, the government’s view, voiced by Garg, is for a one-time transfer. That is what Garg’s dissent note is expected to reflect.

On Monday, the Jalan panel met at the RBI’s office in New Delhi for what was supposed to be its last meeting before submitting its report later this week. However, one of the panel members told reporters later that there would be another meeting and that the report would be submitted after the Budget.

The next meeting will be held in mid-July, another source said.

Garg did not attend the meeting held on Monday.

Sources said there was a stalemate among the panel members as Garg wanted the panel to recommend tapping the “unrealised gains” in the revaluation accounts of the central bank, while Jalan is not in favour of it.

One of the hindrances in utilising the “unrealised gains” is that the RBI had passed a board resolution against using it as a part of dividend to the government.

At the end of June 2018, the “unrealised gains”, which is cited as currency and gold revaluation reserves in the RBI’s balance sheet, accounted for 70 per cent of the central bank’s reserves of Rs 9.6 trillion.

The latest delay in the submission of the report also means that the finance ministry won’t be able to include any assumption on the surplus that it will receive from the RBI in the full Budget.

According to the interim Budget 2019-20, dividend from the RBI and state-owned financial institutions has been budgeted at Rs 54,817 crore, compared to the 2018-19 Revised Estimate of Rs 51,623 crore but much lower than that year’s Budget Estimate of Rs 74,901 crore.

This means a tighter fiscal balancing act by the finance ministry under a new minister. The Centre is likely to retain a fiscal deficit target of 3.4 per cent of GDP in the full Budget. At a time when there are real concerns over tax revenue shortfall, and the disinvestment target could also remain unchanged, the Budget-makers are depending on a higher surplus from the RBI to boost non-tax revenue. The RBI needs adequate capital reserves for monetary policy ops, currency fluctuations, possible fall in the value of bonds, sterilisation costs related to open-market operations, credit risks arising from the lender of last resort function and other risks from an increase in its expenditure.

Repeated delays

• Panel was to submit report by end-June, will now submit after Budget
• Panel to have another meeting in mid-July before submitting report
• Garg expected to write dissent note over transfer of reserves
• Govt in favour of one-time transfer, panel members prefer phased transfer
• Report delay means Budget may not factor in higher surplus from RBI