Sunday September 15, 2019
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RBI to Transfer Rs 1,76,051 Crore to Government

Out of this total sum, an amount of Rs 28,000 crore has already been paid as interim dividend and already been accounted by the budget

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RBI, security, finance, market
This is broken as Rs 1,23,414 crore as surplus for year 2018-19 and another Rs 52,637 crore of excess provisions identified by the committee as per the revised Economic Capital Framework. Pixabay

The RBI board accepted the recommendations of the Bimal Jalan committee and has decided to transfer Rs 1,76,051 crore to the government. This is broken as Rs 1,23,414 crore as surplus for year 2018-19 and another Rs 52,637 crore of excess provisions identified by the committee as per the revised Economic Capital Framework (ECF).

Out of this total sum, an amount of Rs 28,000 crore has already been paid as interim dividend and already been accounted by the budget in the previous financial year. The difference in accounting is owing to the Reserve Bank of India (RBI) not following the conventional financial year of April-March thus far.

The following implications are noteworthy from a macro and markets perspective, in our view:
1. The net liquidity injection from the RBI as a result of this exercise will amount to Rs 1,48,051 crore (Rs 1,76,051 crore minus Rs 28,000 crore already paid). This is against an expectation of normal budgeted dividend of Rs 90,000 crore (assumed RBI dividend component of the Rs 1,06,042 crore budget number). We have done a forward liquidity assessment for the rest of the year in a recent note (https://www.idfcmf.com/insights/money-creation-to-pick-up-pace-an-rbi-update/).

RBI, Government, Board
The RBI board accepted the recommendations of the Bimal Jalan committee and has decided to transfer Rs 1,76,051 crore to the government. Pixabay

This is now updated for approximately Rs 58,000 crore of excess transfer and still leaves open market operations (OMO) purchase of bonds in play from the RBI. However, these will now probably shift to the January-March quarter and will be of a smaller amount than earlier assumed.

2. From a budget standpoint, the extra ‘windfall’ owing to the Jalan committee is Rs 58,000 crore. Given the expected revenue shortfalls in a slowing economy and especially vis-a-vis the aggressive assumptions in the budget, it would be prudent to keep this amount in order to meet the budget numbers more credibly. So far, any hope of meeting the budget targets rests on a similar expenditure compression as that undertaken last year, including via moving some items of spending ‘below the line’. Any temptation to use this amount towards a ‘fiscal stimulus’ risks regenerating worries around the quality and effectiveness towards meeting the deficit targets.

3. As pointed out by a friend of ours, the new formula for distributing future dividends potentially imposes a constraint on the quantum of such distributions. The committee has recommended ‘realized equity’ to be 6.5 to 5.5 per cent of balance sheet. It has recommended taking this to lower bound and transferring the entire excess of Rs 52,637 crore so created. Further, as per the suggested surplus distribution policy, only if realized equity is above its requirement will the entire net income be transferable to the government. If it is below the lower bound of requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any) transferred to the government.

Within the range of contingent risk buffer (CRB), that is, 6.5 to 5.5 per cent of the balance sheet, the Central Board will decide on the level of risk provisioning. Given that provisioning is now at lower bound, future dividend transfer decisions will have to account for increasing the size of realized equity in line with the RBI’s growing balance sheet, before such pay outs can be made. This implies that such transfers are unlikely to match the substantial jump that has been recorded in the current year.

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Conclusion:
Overall, the identified ‘excess’ transferable capital by the Jalan committee is only just above Rs 50,000 crore, far below the hopeful bounties being talked about. Not just that, future pay-outs are now formula driven and subject to some constraints with respect to the maintenance of a minimum CRB. However, we believe, this disappointment is blunted owing to a much higher than expected normal dividend transfer for the current year which, if used judiciously, can be invaluable in making the budget math sound more credible.

Overall though, the recommendations and their acceptance by the RBI lend credibility to India’s overall policy frameworks and institutions, especially given the history with respect to this particular debate around RBI capital. From a market standpoint, the net additional amounts involved here at just under 0.3 per cent of GDP do not really move the underlying narrative, which remains bullish for quality interest rates. (IANS)

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Development And Protection Of Citizens – Duties Of Elected Political Executive

In a democratic dispensation the first duties of the elected political executive governing the nation are to bring about development of all and ensure protection of citizens

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Public Safety, Development, Government, Politics, Duties, safety, executive
a policy decision of great administrative value was taken by the Centre to put the newly inducted officers of all these services together for a short 'Foundation Course.' VOA

In a democratic dispensation the first duties of the elected political executive governing the nation are to bring about development of all and ensure protection of citizens from internal and external threats. The political leadership exercises the sovereign power to this end through the bureaucratic machinery — that includes the police — headed by the officers of All India and Central Services who were recruited, trained and placed in various wings of the government to implement the policies flowing from the top. Years ago a policy decision of great administrative value was taken by the Centre to put the newly inducted officers of all these services together for a short ‘Foundation Course’ at what is now the Lal Bahadur Shastri National Academy of Administration (LBSNAA) at Mussoorie, before they dispersed to join the establishments of their respective services at other places for a full length specialised training.

The foundation course had the merit of letting all probationers know each other and putting them on a common grid of understanding of the great cause of national governance that they were going to share in their long years of public service ahead. It would lay the turf for an assured cooperation among them whenever they would have an occasion to work together in future to carry the mission of governance forward. It all began in 1960 the year of my joining the IPS and I could see the benefit of that participation in my own experience. A long time later when I became the Director Intelligence Bureau, I interacted with the Secretaries at the Centre and the Chief Secretaries in the states whom I had known at Mussoorie — which made the sharing of thoughts with them on matters of national importance so easy. What worked was an understanding that we were all together in serving a higher cause.

Public Safety, Development, Government, Politics, Duties
Headed by the officers of All India and Central Services who were recruited, trained and placed in various wings of the government to implement the policies flowing from the top. Wikimedia Commons

Today India is grappling with the challenge of pursuing economic growth of a nation of 1.3 billion people spread across far corners of the vast country and placed in uneven conditions of development. The officers of the Civil Services on whom falls the responsibility of implementing the development policies of the Centre are finding it easier to coordinate the efforts that cut across various ministries and institutions — somewhere because there are no psychological barriers amongst them. In the domain of development they had enough shared experience to put their heads together in a meaningful way. They had knowledge of various facets of what constitutes development — financial, agriculture, infrastructure, forestry, public health and so on. The recall of the foundation course definitely helped in all of this.

While the orientation of Civil Services to the tasks of development is adequate the national scene points to the need for an awareness programme for all Civil Services — as they advanced in their career — on the share of responsibility that would fall on them directly or indirectly, in the sphere of securing the nation and the citizens at large against threats both internal and external. Security for all is also the concern for all and should not be deemed to be something relegated completely to the care of a national security set up and the specialised agencies besides the Police. Warren Christopher, the then US Secretary of State, famously said in 1993 that ‘national security was inseparable from economic security’ and today it is known that the targets of a ‘proxy war’ include economic assets and the industrial life-line — since damaging these weakened the opponent far more effectively than an open war would do. Those handling governance at decision making levels have to have an understanding of the economic dimensions of national security.

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For all of this it becomes a requirement of the time that senior officials across the spectrum of governance — who are adept at handling development — should also be fully informed of the national security imperatives that the governance had to reckon with. A little exposure to what was the state of affairs on the national security front and the developments of strategic import happening in the world outside, in an early stage of their training might prove quite rewarding for them. In the age of knowledge that is upon us ignorance is not a bliss and an awareness of the environ in which the national government was responding to the call of both development and security would be a great asset. A short module of discussion on matters related to national security in the Foundation Course for All India and Central Services would go a long way in providing a minimal basic orientation on the subject that would remain with the senior officers for the future and contribute to a sound decision making by them in later years.

Subjects that would qualify for being included in the presentations by professionals and strategic analysts include National Security Scenario & Policy Responses, Terrorism & Maoism, Disaster Management, Dimensions of Drug Traffic and India’s National Security Set Up & Intelligence Agencies. Every functionary of the government — and even the citizens at large — ought to be aware of their responsibility towards safeguarding national security. We are in an era of covert offensives, an open external attack of the enemy is not the only threat to the nation. Our defence forces are always in a state of readiness to deal with an open warfare. In the Indian context the reality of a proxy war being conducted by a hostile neighbour underscores the importance of our counter-intelligence capabilities that security is all about. Both defence and security have to work together to produce a perfect response. Kashmir has been a testing ground for the success of Intelligence based operations of army and para military forces — the challenge being of neutralising the infiltrated terrorist without collateral damage. Those who man the senior positions in the civil side of the government can benefit from an early exposure to an orientation programme on the lines suggested above. (IANS)