oppn parties Interim Dividend By RBI: Permanent Solution Needed

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  • Last date for filing Income Tax returns by salaried employees extended to August 31
  • Supreme Court extends Assam NRC deadline to August 31
  • Prohibitory orders clamped in Bengaluru. Wine shops, pubs, bars and restaurants ordered closed for the next 48 hours
  • Congress still trying to avoid the floor test in Karnataka
  • 75 percent of the jobs in all private sector firms to be reserved for locals in Andhra Pradesh
  • Supreme Court will hear the petition of two independent MLAs seeking a direction to the Karnataka Speaker to hold the trust vote "forthwith"
  • Congress-JD(S) and a partisan Speaker push the Karnataka trust vote to Tuesday
  • Panel submits draft legislation to the government to criminalize mining, investing and trading of crypto-currencies
  • Government panel suggest a ban on crypto-currencies
  • Lok Sabha passes RTI Act amendment bill amid protests by the Opposition
  • Jasprit Bumrah rested for ODIs and T20s
  • Dinesh Kartik ignored across fromats
  • Rohit Sharma included in Test team too while Wriddhiman Saha makes a comeback after injury
  • Virat Kohli retained as captain across formats for the West Indies tour
  • MS Dhoni decides to take a two-month break, will skip West Indies tour but will not retire
Congress-JD(S) government loses trust vote in Karnataka. BJP might stake claim to form the government
oppn parties
Interim Dividend By RBI: Permanent Solution Needed

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
The government has had its way. The RBI is to transfer Rs 24000cr as interim dividend for 2018-19. This is the second year in succession that the central bank is doing so. Last year the amount was just Rs 10000cr. But this year, a cash-strapped government juggling to keep its fiscal deficit target in check in the face of the demands of an election year was eyeing the ample reserves of the RBI. One thinks that it has adopted the interim dividend route to mute the criticism that surfaced when rumours were doing the round that the government wanted the RBI to part with a substantial sum of the huge reserves it has accumulated over the years.

If one sees from a purely commercial and corporate point of view, there is nothing wrong in shareholders demanding an enhanced dividend or even an interim dividend on their investment. Companies usually do this. There is also no harm in asking for unutilized reserves to be transferred. This is usually done by issuing bonus shares in the corporate world. The Centre, as the sole shareholder, is also specially empowered to give directions to the central bank vide Section 7 of the RBI Act.

But the role and function of the central bank in the economy are vastly different from that of a company in the marketplace. There are many areas where the central bank has to intervene, either to shore up the rupee or to calm the financial markets in turbulent times. With a global economic slowdown on the cards, the RBI needs the reserves. It also matters in global ratings – a central bank with ample reserves to tide over difficult times is likely to get better ratings. Finally, it never pays to undermine a financial regulatory institution for political gains. Instead of eyeing the RBI reserves, the government must either curb its financial profligacy or find other ways to raise revenue.

One feels that the government must do away with these knee-jerk responses. It must sit down with the RBI, make necessary changes in law and work out a permanent solution for transfers of dividend. Former RBI governor Bimal Jalan is heading a committee that is looking into the economic capital framework for the RBI. This committee is expected to institutionalize a system for periodic transfer of RBI surpluses to the government. The committee will definitely study the MoU signed by the Bank of England with the UK Treasury whereby the central bank will transfer 50 percent of its profits each year to the government in two installments, one as an interim dividend and the other as final. India needs a similar institutionalized system to do away with the arbitrariness and improve relations between the government and the RBI.