Don’t need RBI funds to bridge deficit: Arun Jaitley

RBI Update

Arun Jaitley expressed confidence that the government would meet its fiscal deficit target for the year to 31 March without dipping into the central bank’s reserves, which he said could be used for recapitalizing state-run banks or for public welfare. It (part of the Reserve Bank of India’s reserves) could be used for recapitalizing the public sector banks, it could be used for the poor of the country. The government does not use it for its own salaries. My government has the best fiscal record. Even this year, we will maintain the fiscal deficit and I don’t need that kind of money for maintaining fiscal deficit, Jaitley said. Jaitley said states could do so if they had the capacity, while remaining mindful of their mandated fiscal deficit ceiling of 3% of state GDP. At a time the current account deficit is rising because of high oil prices, the last thing that can happen to India from a big-picture point of view is also a rise in its (combined) fiscal deficit. Its impact will be that there will be investment outflow and the rupee’s parity will be disturbed, he said. Jaitley defended the government’s move to strongly raise the issue of liquidity crunch faced by non-bank financial institutions with RBI. The government will be failing in its duty if it does not use all instruments at its command to inform the central bank that this is a real problem that pinches you and it will be completely incorrect for anybody to suggest that government flagging this issue is infringement of (RBI’s) autonomy. We are not taking over the function (of RBI), he said. Jaitley, however, maintained that the government did not expect RBI governor Urjit Patel to resign. Jaitley said the government wanted a new committee to review how much capital RBI needed as this was the nation’s money. Most central banks have 8% of their assets as reserves, while conservative central banks have 13-14%. In 2013, the Malegaon committee said you have ₹1.13 lakh crore (trillion) and you give it to government. Nobody talked about raiding the reserves of the RBI then. Today, it is believed that RBI has 28% of its assets as reserves, he said.

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