RBI Syncs Financial Year With Fiscal Year-Cloud Affairs

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RBI Syncs Financial Year With Fiscal Year-Cloud Affairs
RBI Syncs Financial Year With Fiscal Year-Cloud Affairs 

Highlights

The reserve bank of India board on Saturday recommended the aligning the  financial
year of the central bank (July-June) with that of the government’s fiscal year (AprilMarch) starting in 2020-21 to arrive at better estimates of projected surplus transfers to the government for the purpose of budgeting. “The Board recommended aligning the financial year of RBI, currently July-June, with the Government’s fiscal year (AprilMarch) from the year 2020-21 and approved forwarding a proposal to the Government for its consideration,” the central bank  said in a statement. The proposal was moved at the 582nd meeting of RBI’s central board of directors in New Delhi that  featured a  customary postbudget address by finance minister Nirmala Sitharaman. The finance minister, in her address, “outlined the thinking behind the Union Budget 2020-21 and the focus areas of the Government.

The Finance Minister indicated increased complementarity in policy between the RBI and the Government to address growth concerns,” the statement said. The decision to align RBI’s financial year with government’s fiscal year is in sync with recommendations of a committee headed by former central bank governor Bimal Jalan , two officials with direct knowledge of the matter said, on condition  of anonymity.


The committee, which submitted its report on August 27, 2019, said, “With regard to distribution of interim dividend, the Committee recommends that the RBI accounting year (July to June) may be brought in sync with the fiscal year (April to March) from the financial year 2020-21”. The RBI, in consultation with the central government, had constituted a six-member expert committee to review “the Extant Economic Capital Framework” of the central bank. “Historically, the July-June year would have been linked to the agricultural seasons, which is not a consideration in these times.

Benefits

The benefits from such a transition are manifold,” it said. According to the report, the RBI would be able to provide better estimates of the projected surplus transfers to the government for the financial year for budgeting purposes. “It could reduce the need for interim dividend being paid by the RBI. The payment of interim dividend may then be restricted to extraordinary circumstances,” it said. The committee said the transition to the April-March year would also bring about “better cohesiveness” in monetary policy projections.

 The central board of the RBI, in August last year, decided to transfer a sum of ₹1,76,051 crore to the central government, comprising ₹1,23,414 crore of surplus for 2018-19 and ₹52,637 crore of excess provisions identified as per a revised Economic Capital Framework (ECF).

Jalan Committee

The revised ECF was calculated on the basis of recommendations by the expert panel under Jalan. The Jalan committee was constituted on December 26, 2018 to resolve differences between the government and the central bank over RBI’s reserves. The total reserves of the RBI at that time were about ₹9.6 lakh crore. The Centre felt that RBI was more than adequately capitalised, and should pass on the surplus to the government. The RBI has a statutory mandate under section 47 of the RBI Act that its profits shall be transferred to the government, after making provisions. The Jalan committee was asked to review the justification of various provisions, reserves and buffers in line with best global practices.

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