Someone wrote me over whatsapp this morning : 'मोदी सरकार का मन रिजर्व बैंक के 1 लाख 76 हजार करोड़ हड़पने से भी नही भरा है...'
Which took me back to the story I had not fully followed at that time.. Three months ago, RBI decided to give Government a large pay out of 1.76 lakh crores, the largest in the country's history. The Government had hounded RBI since 2018 over it, and it was largely thought to be the reason Governor Urijit Patel and Deputy Governor Viral Acharya resigned before their terms were completed.
A committee headed by former RBI Governor Bimal Jalan was formed in Dec 2018 to recommend what the RBI's reserves should be and what it could give to the Government. The committee's report was accepted by the RBI board and this payout resulted.
While the Reserve Bank might have high capital reserves, much of this is simply notional arising out of a falling rupee. Its actual free cash reserves are not very high. Amartya Lahiri, director of the RBI-funded Centre for Advanced Financial Research and Learning wrote in 2018 that the RBI is actually “one of the most under-capitalised central banks in the world”.
In fact, even the Jalan Committee Report said this August, that the Reserve Bank of India’s balance sheet should be strong enough to support banks if there is a need to recapitalise them during a financial crisis. India, with one the lowest sovereign ratings, and not having a reserve currency to boot, should not think that risky actions by the government would still be as safe as advanced economies, said the panel.
In the run up to that decision by the RBI, what was not so widely commented upon, however was the lying by the Finance Minister (and hence the Modi government) in its presentation of the budget this July.
The Economic survey had already shown that there was a big shortfall in tax collections over 2018-'19 (by as much as 13.5% of the estimate of total tax revenues), but the Finance Ministry presented fudged figures to show that that money had in fact been realized. The shortfall in fact, amounted to a whopping Rs 1.7 lakh crore. The shortfall was equal to one percent of India's GDP. This was the largest gap between tax estimates and actuals in India’s tax history.
This discrepancy is also reflected in government spending. Spending was shown in the Budget at Rs 24.6 lakh crore in 2018-19, while the more accurate figure in the Economic Survey shows that the government only spent about Rs 23.1 lakh crore, about Rs 1.5 lakh crore less.
Rather than acknowledge the shortfall in the budget speech, finance minister Nirmala Sitharaman omitted numbers relating to the government’s overall revenue and expenditure. The entire Budget in fact had shrunk massively, by around 1% of GDP – but none of this was reflected in the budget statements provided to the public!
Thus, very significant cuts were made to public expenditure in the wake of the decline in tax revenues. But how do we know which items of expenditure were curtailed, and by how much ? As Jayati Ghosh, Economics Professor, wrote : 'When a Budget is passed by parliament, the debate and discussion are essentially about allocations – so if the government has unilaterally made swinging cuts to particular items of expenditure, these must be brought to public notice. How can we trust any numbers coming out of the government if this is the manner in which they choose to hide the truth?'
Ms. Ghosh goes on to add : 'These numbers also cast into serious doubt the revenue projections for the coming year.. the proposed increase in revenues in the current budget for 2019-20 are so optimistic as to be completely unrealistic.. total revenues would have to increase by 25 % in the current year – by nearly Rs 4,00,000 crore – over what was actually achieved last year. This is close to unattainable.'
The amount of the shortfall in realized taxes was in fact, so similar to the payout by the RBI subsequently, that it has since been speculated if that was the reason for the Government's hounding of the RBI.
In fact the Government had demanded nearly 4 lakh crores from the RBI, which it did not ultimately get. Perhaps the nearly 2.25 lakh crores more it demanded would have covered the gaping hole in the 2019-'20 tax collections ?
Which took me back to the story I had not fully followed at that time.. Three months ago, RBI decided to give Government a large pay out of 1.76 lakh crores, the largest in the country's history. The Government had hounded RBI since 2018 over it, and it was largely thought to be the reason Governor Urijit Patel and Deputy Governor Viral Acharya resigned before their terms were completed.
A committee headed by former RBI Governor Bimal Jalan was formed in Dec 2018 to recommend what the RBI's reserves should be and what it could give to the Government. The committee's report was accepted by the RBI board and this payout resulted.
While the Reserve Bank might have high capital reserves, much of this is simply notional arising out of a falling rupee. Its actual free cash reserves are not very high. Amartya Lahiri, director of the RBI-funded Centre for Advanced Financial Research and Learning wrote in 2018 that the RBI is actually “one of the most under-capitalised central banks in the world”.
In fact, even the Jalan Committee Report said this August, that the Reserve Bank of India’s balance sheet should be strong enough to support banks if there is a need to recapitalise them during a financial crisis. India, with one the lowest sovereign ratings, and not having a reserve currency to boot, should not think that risky actions by the government would still be as safe as advanced economies, said the panel.
In the run up to that decision by the RBI, what was not so widely commented upon, however was the lying by the Finance Minister (and hence the Modi government) in its presentation of the budget this July.
The Economic survey had already shown that there was a big shortfall in tax collections over 2018-'19 (by as much as 13.5% of the estimate of total tax revenues), but the Finance Ministry presented fudged figures to show that that money had in fact been realized. The shortfall in fact, amounted to a whopping Rs 1.7 lakh crore. The shortfall was equal to one percent of India's GDP. This was the largest gap between tax estimates and actuals in India’s tax history.
This discrepancy is also reflected in government spending. Spending was shown in the Budget at Rs 24.6 lakh crore in 2018-19, while the more accurate figure in the Economic Survey shows that the government only spent about Rs 23.1 lakh crore, about Rs 1.5 lakh crore less.
Rather than acknowledge the shortfall in the budget speech, finance minister Nirmala Sitharaman omitted numbers relating to the government’s overall revenue and expenditure. The entire Budget in fact had shrunk massively, by around 1% of GDP – but none of this was reflected in the budget statements provided to the public!
Thus, very significant cuts were made to public expenditure in the wake of the decline in tax revenues. But how do we know which items of expenditure were curtailed, and by how much ? As Jayati Ghosh, Economics Professor, wrote : 'When a Budget is passed by parliament, the debate and discussion are essentially about allocations – so if the government has unilaterally made swinging cuts to particular items of expenditure, these must be brought to public notice. How can we trust any numbers coming out of the government if this is the manner in which they choose to hide the truth?'
Ms. Ghosh goes on to add : 'These numbers also cast into serious doubt the revenue projections for the coming year.. the proposed increase in revenues in the current budget for 2019-20 are so optimistic as to be completely unrealistic.. total revenues would have to increase by 25 % in the current year – by nearly Rs 4,00,000 crore – over what was actually achieved last year. This is close to unattainable.'
The amount of the shortfall in realized taxes was in fact, so similar to the payout by the RBI subsequently, that it has since been speculated if that was the reason for the Government's hounding of the RBI.
In fact the Government had demanded nearly 4 lakh crores from the RBI, which it did not ultimately get. Perhaps the nearly 2.25 lakh crores more it demanded would have covered the gaping hole in the 2019-'20 tax collections ?
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