Letter to BS: Forcing RBI to transfer pre-determined amount is unwarranted

This refers to “Let RBI decide” (July 25). I agree with your views that requiring the Reserve Bank of India (RBI) to transfer a pre-determined portion of its annual surplus as dividend to the government is unwarranted. It is a basic principle of functioning for any corporate that surplus is determined by the income which accrues minus the expenditure incurred, some of which is transferred to the reserves and the rest is paid out as dividend to the shareholders. In the RBI’s case, the government is the sole shareholder so this same principle should apply to it. The RBI needs to build up its reserves to deal with volatility in the markets it oversees as well as to handle the government borrowing programmes, among other things. In response to the government’s insistence that the RBI had adequate reserves, the latter has not been transferring part of its surplus to its reserves for the last three years but paying out the entire amount of surplus as dividend to the government. The fact that the dividend shrunk in 2016-17 as compared to the previous year was principally on account of the additional expenditure the RBI incurred on handling the government’s policy of demonetisation -- mopping up the denotified currency and issuing new currency notes. The costs of printing, transportation and examination of notes considerably increased its expenditure.

The government cannot regard the central bank as a cash cow that will yield an assured amount of profit every year. Its surplus varies year to year depending on various factors. It has been a bane for the government-owned undertakings and the banks that the successive governments require profit making ones to pay dividend often disproportionate to their surpluses for those years, often directing them to dip into their reserves to do so. Now this has come to the RBI. The government has interfered in most aspects of the RBI’s functioning. This action of the successive governments has slowly whittled down the operational autonomy of the RBI. It will be a short-sighted measure on the part of the government to deplete the financial strength of the central bank and make unwarranted inroads into its 

operational autonomy.

Arun Pasricha, New Delhi

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