This refers to the report “Jalan-led panel to take call on reserves transfer” (December 27). It is heartening to find that the Reserve Bank of India (RBI) under the new governor Shaktikanta Das has shown the magnanimity and chosen to include both Bimal Jalan (pictured) and Rakesh Mohan in the Economic Capital Framework (ECF) panel. This has put to rest speculation in media about the differences between the government and the RBI on who should man the panel. The approach is transparently conciliatory.
Here are a few aspects that deserve the Jalan panel’s attention.
1) The RBI’s share capital has remained static at Rs 50 million since inception (1935). Is there a case for raising this to a decent level, say, the equivalent of $500 billion or upwards? If yes, should this be done by additional contribution by the government or by conversion of existing reserves?
2) Should the RBI create a ‘capital protection fund’ to insulate its capital from erosion in value? If yes, will the current provisions of the RBI Act cover the creation of such a fund or is an amendment to the Act necessary?
3) Is it not prudent accounting practice for the RBI to protect the value of its gold and foreign securities holdings against value erosion, instead of generating income by taking advantage of rupee depreciation? The panel must consider a more transparent accounting procedure to regularise the accounting practices followed by the RBI till recently. The fallacious argument in the Economic Survey (ES) 2016-17 about ‘surplus reserves’ emanated from certain wrong notions about RBI’s accounting practices with regard to the revaluation of non-rupee assets (gold, forex securities etc) that were promptly clarified by the then RBI governor Raghuram Rajan and the ES suggestion was not pursued. Rajan gave more elucidations on the subject in his New Delhi speech on September 3, 2016.
Hopefully, all these and more will get clarified when the expert panel on ECF submits its report.
M G Warrier Thiruvananthapuram
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