RBI in standoff with Modi Govt after it demands 3.6 lakh crore ‘excess capital’ from the bank

A stand-off between the Government of India (GoI) and the Reserve Bank of India (RBI) has ensued with the GoI seeking capital from the central bank’s balancesheet after demands conveyed earlier this year by the GoI ‘is sitting on excess capital of Rs 3.6 lakh crore’.

Officials, however, say that the government is instead looking for a review of the framework which governs the RBI’s balance sheet.

The comments may not signal an end to the very public battle between the government and the central bank over a host of issues, but could signal the Finance Ministry’s willingness to discuss a key point of dispute between the two sides.

The statement invited sharp criticism from Congress leader and former finance minister of India P Chidambaram, who had on Thursday accused the Narendra Modi government of trying to “capture” the Reserve Bank of India to tide over its fiscal crisis.

“What is this jargon put out by the government about “fix the economic capital framework of the RBI?” Chidambaram tweeted.

Economic capital framework refers to the funds set aside by the RBI required to deal with different kinds of financial risks such as an economic meltdown.

The stand-off between the GoI and the RBI is boiling down to one number – Rs 3.6 lakh crore.

While the points of difference between the two are many, it is the issue of the central bank’s balance sheet that has become most contentious.

“The government stares at a fiscal deficit crisis… The government wants to step up the expenditure in an election year. Finding all avenues closed, in desperation, the government has demanded Rs 1 lakh crore from the reserves of RBI,” the former finance minister had said at a press conference on Thursday.

If RBI Governor Urjit Patel stands his ground, the Centre was planning to issue a direction under Section 7 of the RBI Act, 1934, directing the apex bank to transfer Rs 1 lakh crore to the government’s account, he had claimed.

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