 Hello and welcome to NewsClick. I am Paranjoy Gohatakurtha and we are now going to discuss whether the government of India is attempting to quote-unquote read the treasury. For some years now, the Ministry of Finance has been less seriously eyeing the reserves of the country's central bank and APEX monetary authority, that is the Reserve Bank of India and it is now also looking into the money that the country's financial regulator, the Securities and Exchange Board of India has. A committee has been set up. The committee is reportedly submitted its report to discuss what this report may contain and what it means for this ongoing tussle between North Block, where the Ministry of Finance is headquartered and Minstreet, the headquarters of the Reserve Bank of India. What this really means for the country's economy. Let me welcome Abhik Parman. Abhik is an old friend. He has 26 years of work experience on the political economy. Thank you so much, Abhik. Tell me, you recently wrote an article in the Economic Times on the 18th of July saying New Delhi must reform instead of picking Mumbai's pocket. Would you like to summarize what you wanted to say in that column you wrote? Essentially, what I wanted to say for Anjai was that the RBI has some balances and it's not a small number. It's 9.8 lakh crore. Let's say 10 lakh crore. Yeah, 9.8 trillion. That's a huge amount of money. Yes. 190 lakh crore is the GDP and the RBI reserves, as you are pointing out, is coming to about 10. So, where does that get us? 5 percent. That's a lot. Yes. So, the thing is that in general, the economy, overall economy is slowing. Every sector we've seen signs of distress. Now, in this scenario, I mean the year that will end in March, we have seen a 1 lakh crore shortfall in GST, which is the... Collections of the goods and services stacks. Yes. However, we have budgeted for 1 lakh crore in disinvestments. Over the last 10 years in one year, no government has been able to disinvest 1 lakh crore. So, there are all kinds of things, numbers which are being fudged deliberately or probably to make the surface numbers look pretty... I mean, the former chief economic adviser has even questioned the rate of growth of our GDP. Yes. And he's repeated it today, again. That's correct. That he disagrees with those who don't believe him. Yeah. Includes Dr. Bebek Debroy of the... Yes. Who heads the Prime Minister's economic adviser. Absolutely. So, this data per se, I mean, but that's a different story that this data fudging or data false data or unbelievable data, that was the monopoly of China, but China has recently released data which shows that at 6.2 percent growth, it is a lowest growth for 27 years. So, if China has no hassle about releasing bad data like that, I don't see why India's employment data cannot be released, why we are not honest about... But beyond that, I think... So, there are so many gaps in funding and we typically announce in our excitement so many new projects and we allocate some from big to small to all the projects, but how will you fund it? The one option is to borrow. Yes, let the deficit go. Don't stick to the FRBM target and in a slowing economy, it might be a good option. Yeah. And for the benefit of our viewers, FRBM is the fiscal responsibility and budget management act, yes. Yes. So, here they want to do this off the books. See, so that the FRBM artificially looks fine at 3.4 percent or something. However, you make... You borrow money from PSUs. Public sector undertakings, yes. You ask them to give bigger... That's right. So, the oil subsidies being borne by the oil and natural gas corporation, the food subsidies being borne by the food corporation of India. That's right. And therefore, 10 lakh crore just lying there with the RBI, I think it's too much of a temptation for government. Okay. Now, hear me out. In December 2018, the government of India set up a committee headed by the former governor of the Reserve Bank of India, Dr. Memal Jalan, Rajasabha and the members of the committee include the former deputy governor, Dr. Rakesh Mohan and the members of the central board, there were two of them, Bharath Doshi, Sudhir Mankad, deputy governor NS Vishwanathan and above all, finance secretary Subhash Chandra Garg. Now, according to the media leaks that have come out, Mr. Garg has sent a dissenting note. That's right. Because the rest of the committee members apparently want to give money to the government in a staggered manner over the next three to five years. Yes. Whereas Mr. Garg would like it at one go. Yes. That may not be the only point of contention. It could also be the quantum of money that we don't know yet. What quantum has the Jalan committee suggested? Now, yes, Jalan's this gradualist approach is fine. If you have to do it, don't do it fast. Do it slowly over the next three to five years. Because right now, to do it in one go and take so a significant amount of the arduous assets or reserves away from it might signal to outside, well, they're not really, they're speculators. Right. Would you call, I mean, is it speculators or it's the rest of the world? I mean, is it like? Yes, yes. Of course. Credit rating agencies to take a crack at the rupee. Let's see if you can break it. Right. Especially with this new thing coming up, the dollar denominated bonds, sovereign bonds. So, we have to be very, very careful that we have enough ammunition to fight off these rates. Okay. Now, let's look at what has actually been happening. The surplus capital of the Reserve Bank of India, which has been transferred to the government over the years, came down from roughly, from 65,876 crores in 2016-17 to 40,659 crores the following year. Then, it jumps up again, goes up to 68,000 crores in 2018-19. That includes an interim transfer of dividend about 28,000 crores. Now, if you look at the current financial year, the expectations are that this will go up to 90,000 crores. If you look at the receipts budget, the dividend or surplus of the Reserve Bank of India and nationalized banks and financial institutions put together, they are showing a rise of, it's coming to about 1.06 lakh crores, 1.06 trillion in 1920, which is more than, it's about 23,000 crores more than what was given in the interim budget in February 2017. Now, what do you make out of these figures? I think the crucial figure which the government is using to justify this kind of rate on the Reserve Bank of India is that the RBI's surplus as a percentage of its total assets, which includes the money it lends out for a bank, the lending is also part of its assets, is 28 percent. And they say that globally, this average is 14 percent. So, half of that? Half of that. Now, my point is… The proportion of the gross assets of the central bank? That's right. Held as surplus, so 28 percent for the RBI, 14 percent globally. Now, globally, this number actually makes no sense because globally will include America. America does not have massive reserves, it doesn't need them because it is the reserve currency of the world. Who is going to attack the dollar? What are you going to attack the dollar with? Which currency? I mean, it's a long way before the euro, I mean, forget the euro, even the yuan can hope to go after the dollar. We have 430 billion in reserves we are holding to fight off an attack. America holds us 126 billion and an economy which is the largest in the world. So, this average doesn't make sense? This average doesn't make sense because then you have to go down, if you take a world average, then you go down to Togo and Mali and so on and so forth. Where the holdings are tiny? But you know, Arvind Subramaniam, the former chief economic advisor who is now an antagonist as far as this government is concerned because he's saying you've inflated your GDP growth rate by 2.5 percent, not just the NDA government but the previous UPA government the last three years or four. He recommended, I mean, he said that there is scope for more transfer of the Reserve Bank of India's reserves to the government of India, the consolidated fund of India. Now, this has been opposed by at least two governors of the Reserve Bank of India, Raghuram Rajan and Urjit Patel. And let's also remember that this is not the first time this matter is coming up. There have been at least three committees in the past, 1997, V. Subramaniam committee, 2004, Usha Thorat committee, 2013, Y. H. Malikham committee. All three committees have deliberated on this whole issue of what should be the total proportion of the Reserve Bank of India's gross assets that should be transferred to the government of India, the consolidated fund of India. See, I have no problem with having a new committee because things on the ground change. 97 is not 2019. So, it's okay. I mean, have a new committee by all means. But I think the main problem here is that if you weaken or if you lower your defenses against a very turbulent world, the world is in crisis today because two gigantic elephants are fighting. That is the US and China. There is a trade war. And now it is a tariff war. So, expectations are that it will go into a currency war. So, they will start attacking each other's currencies. Now, the word you have used is the world economy is on a knife edge. And you believe because of the tensions in West Asia, even the oil markets are very volatile. Very volatile. So, I think this is really not the time to say that the government will take money out of the RBI because it sends out a signal. And these markets, speculative markets, move very fast on signals. So, the signal going out to these guys, who will be the raiders, is that to the defenses are going down. Now, recently, when this matter came up, I mean, you know, there has been some tension between the Reserve Bank of India and North Block. There was this whole issue of Sector 7 of the Reserve Bank of India Act. Now, the then finance minister, Mr. Runjaitly, said, let us have a discussion on this. And he objected to the phrase, a raid on the treasury. He said, this money is after all being used for the poor of this country. It is going to be used for recapitalization of banks. So, why are we, I mean, Mr. Jaitly said this at a public meeting on the 18th of December. So, why are we getting so perturbed about, you know, Delhi not doing its bit, you know, to go back to the title of what you wrote, you know, New Delhi must reform instead of picking Mumbai's pocket. See, the disturbing fact is that the goal of money managers or bankers is very different from, or economists for that matter, is very different from the goals of a politician. A politician is a short-term phenomenon. He or she knows that there is five years. And if I get another five years, I have to win a victory, right, win the polls. So, for them, the fiscal health is a secondary or a tertiary issue. For the banker, the main issue is to protect your balance sheet. And for the reserve bank, it is to protect India's balance sheet, right. So, if that responsibility is diluted by our political class here in Delhi, saying that, yes, there is nothing, we will take, let's say, half of your reserves. You make up for it later. But you take away half of these reserves when the world is heading towards the cliff and you expect RBI to do its job. It makes our economy vulnerable. That's what you want. Absolutely. Okay. I mean, I mean, there have been countries like Hungary which have been accused of raiding its treasury. But let's look at another small part of the story because compared to the reserve bank of India, the surplus of the securities and exchange board of India is very small. To use your word, peanuts is 31,000 crores. But there is a proposal to amend the finance act and create a reserve fund from this general fund that the SEBI has. Which will go into the consolidated. That's correct. Quarter of it, 25% of it. SEBI gets this money by charging, for various services it provides to various participants in the financial markets. But Ajay Tyagi, the current head of the securities and exchange board of India, has apparently written a letter protesting against this move to the ministry of finance, to the minister of finance on the ground that it would again make SEBI the market regulator vulnerable and erode its autonomy. You agree with what he says? I do, I do because SEBI was never intended to be part of the government. SEBI is like RBI. It's a statutory institution with guaranteed independence. Now this government, this government, especially they've been trying to erode this. First, by setting up this monetary policy committee to work with the RBI on setting interest rates. So part of that autonomy is being eaten up. Here in SEBI, if SEBI has to go and ask the government permission before making any investments, capital investments, and the government has the right to hold back permission, then that immediately develops a relationship of power that the reins are held by the government. SEBI is the sort of agent. So the market regulators autonomy gets eroded. Absolutely. One. Second, SEBI's other, more intelligent and more thoughtful point is that if it is, if these, see these are monies which are paid by as fees, brokerage fees, these terminal fees and very small transaction fees, but they adapt to a lot of money and they help to keep SEBI going to hire the employees to whatever, try money, whatever is required. So now once this money goes directly to the consolidated fund of India, which belongs to the government. The government didn't use it for whatever it wants. No. All the, all the players in the market, they will interpret this as another tax because see, I pay, SEBI doesn't get, I pay, Sarkar gets. All right. It's a tax, straight. Now, if it is a tax, then the government has a perverse incentive to maximize returns from the tax. So from 0.1%, they might do 0.125%. All right. So in conclusion, if I can ask you for your concluding remarks, to believe that both the attempt to get more money out of the Reserve Bank of India at one go and also what has been done to the securities and exchange board of India represent this government's attempt to constrain the autonomy of two important institutions, which are responsible for the working of the financial sector and in fact the economy as a whole. 100%. 100%. This is an attack on very important, very sensitive financial institutions and it can't just be an ego battle. I mean, if we take it as such, then, I mean, the consequences can be terrible. Thank you so much, Avik for coming here and giving us your views. You just heard senior journalist Avik Barman talking about how the government is trying to make money out of the Central Bank and Apex Monetary Authority, the Reserve Bank of India, as well as the country's financial regulator, the Securities and Exchange Board of India. Thank you for being with us on this program and keep watching NewsClick.