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  Abhishek Manu Singhvi

‘Modi Made Disaster of Demonetisation’ shaved off 1.5% of India’s GDP and severely denigrated the
institutional autonomy of the RBI, now PM Modi plans Demonetisation Part -2 that will again shave off
2% of India’s GDP in one shot. According to public information, Modi Govt is coercing RBI to pay a
special dividend of Rs 3.6 lakh crore, equal to nearly 40 percent—pause and repeat, 40 percent—of
reserves accumulated over decades. This is 2% of India’s GDP.

Staring at an imminent defeat in the 5 state elections and the ensuing Lok Sabha elections, a desperate Modi
Government wants to grab the family silver of the RBI in order to indulge in pre elections sop-splash!
Modi Govt which was absolutely ‘Asleep at the Wheel’ for 4 years and six months; suddenly has risen from its
deep slumber to pounce on the 3.6 Lakh Crore worth of cash reserves at the RBIand can be used by them for
financial contingencies. A cobweb of fraudulent narrative, which smacks of despotism and complete
disregard for institutional integrity towards the RBI is being carefully weaved by the Modi Govt, so that
it snatches away the family silver in an election season, in order to hide its mal-governance & failures.
This falsehood is being peddled by none other than the Finance Ministry through the likesof senior
officers who are being coerced to put forth a misleading argument and even fictitious & false data in
order to construct this narrative.

The Contingency Reserve Rate which allows the RBI leeway to utilize its financial resources for
emergencies now at 6% and Modi Govt. nefariously seeks to take away even that ‘Contingency Reserve’
under the garb of ‘fixing appropriate economic capital framework of RBI’. Senior Govt. bureaucrats are
being forced to write juvenile tweets to mislead the people by quoting wrong data on Fiscal Deficit.

Fact: 1. The Fiscal Deficit in FY 2013-14 was not 5.1% but 4.4%.

  1. Modi Govt. has already consumed 95.3% of the full year Fiscal Deficit target in the first six months of
    FY 2018-19. The government was in a better position during the same period last year but could not
    maintain the target. Therefore, because of lower than expected indirect tax collection, which is going to
    cut Capital expenditure-reflecting badly in the election season;Modi Govt wants to seize the RBI Cash
    Reserves and use them as ‘Electoral Lollipop’ & to ‘recapitalize’ its crony friends!
    Spinning is an art perfected by the Finance Minister& the second tweet by the DEA Sec perfectly reflects that.
    Modi Govt. has come forth with a bunkum and bogus argument that it wants to fix the ‘economic capital
    framework’ of the RBI.
  2. In the late 1990s, deputy governor Shri Y.V. Reddy appointed the V Subrahmanyam committee to go into
    the question of the minimum contingency fund that the RBI must keep to meet emergency requirements.The
    committee then recommended 12% of the RBI’s assets as the minimum contingency fund accumulated from
    the central bank’s profits from market operations.
  3. The Congress- UPA government, this question was further studied by the Y.H. Malegam committee, which
    didn’t prescribe a specific minimum requirement. As the Malegam committee’s recommendations started
    getting implemented in the latter half of UPA-II, the RBI regularly transferred higher amounts (Rs
    40,000 to Rs 50,000 crore) year after year. As a result of Modi Made Disaster of Demonetisation in
    2017-18, this plummeted to just Rs 30,659 Cr (2017-18) as opposed Rs 65,876 Cr (2016-17) in the
    previous fiscal.
  4. Now the Contingency Reserve Ratio has come down to just 6% but the Modi Govt wants to further
    reduce it by taking a piece of that pie. This effectively means that any excess reserves with the RBI will
    go directly into the Finance Ministry’s treasury. The nefarious ploy of the Modi Govt seeking joint
    control of the management of the Reserve and the much sought after Rs 3.6 Lakh Cr will be
    detrimental to the RBI’s institutional autonomy.
    4. These funds of the RBI will be used by the Modi Govt to recapitalize public sector banks, failing
    PSU’s, thereby benefitting crony friends in an election season.

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