RBI to transfer Surplus Profit to Central Government

Contents

• 1
• 2 What is the News? 
• 3 RBI’s Transfer of Surplus to Government: 
• 4 RBI transfer to Government for 2020-21: 

What is the News? 

The RBI (Reserve Bank of India) Central Board has approved the transfer of Rs. 99,122 crore as surplus to the central government.

RBI’s Transfer of Surplus to Government: 

• The Reserve Bank of India(RBI) transfers its surplus profits to the Government every year. It is according to the provisions of Section 47 of the Reserve Bank of India Act, 1934.
  • Section 47 says that surplus profits of the RBI are to be transferred to the government. Surplus profit is the profit left after making various contingency provisions for bad and doubtful debts, depreciation in assets, contributions to staff, and superannuation funds, etc.

RBI transfer to Government for 2020-21: 

• RBI has decided to transfer the surplus for the nine-month period of June 2020 to March 2021.
  • This was because RBI in 2020 has changed its accounting year to April-March from the earlier period of July-June.
• Further, RBI has transferred the amount by keeping into account the Bimal Jalan Committee. The committee recommended that the RBI maintain a minimum Contingency Risk Buffer of 5.5% of its balance sheet.

Significance of this RBI Transfer to Government:

• The RBI’s transfer to the government is above the budgeted expectations. The budget had estimated to receive a surplus of about ₹50,000 crores from the RBI for 2021-22.
  • Reason: This was because of the higher earnings of RBI from open market operations as well as receipts from foreign currency sales,
• Moreover, this is the highest ever transfer by the RBI to the Government in an accounting period barring 2018-19.
  • In 2018-19, RBI transferred ₹1.76 lakh crore to the government which included a one-time transfer of extra reserves.

Impact of this Transfer: The higher-than-expected transfer will help the Government to absorb losses as:

• The government is expecting a sharp fall in tax collections due to the severe second wave of COVID-19 which has forced lockdowns in several States.
• The government is also likely to find it challenging to meet its privatization and disinvestment target of $24 billion. 
• The revenue from the Goods and Services Tax(GST) is also likely to fall.
• Moreover, the government is also under pressure as it has no option to cut expenditure given that it needs to increase investment and spur growth.

Source: The Hindu