Centre must share ‘extraordinary’ RBI dividend with states: Cheema

Chandigarh: Punjab finance minister Harpal Singh Cheema on Friday raised serious concerns over the Centre taking an "unprecedented" dividend of nearly Rs 2.87 lakh crore from the Reserve Bank of India, warning that excessive extraction of RBI reserves could weaken the country's long-term economic resilience and undermine the strength of the central bank.Referring to reports that the RBI has transferred nearly Rs 2.87 lakh crore to the Centre out of the central bank's total income of around Rs 4 lakh crore, Cheema said this was among the highest dividend transfers ever made by the RBI to any govt since its inception. He said at a time when ordinary citizens are already facing the burden of high fuel prices, inflationary pressures and repeated calls for austerity, the extraordinary transfer raises three serious concerns. "First, such windfall gains are currently kept outside the divisible pool of taxes shared with the states. If the Union Govt is facing economic pressures due to global uncertainties and supply shocks, the states are facing the same challenges. Extraordinary gains of this nature should be shared with the states in the spirit of cooperative federalism and fiscal fairness," he stated. Expressing concern over the impact on the central bank's financial strength, Cheema said, "While reducing the fiscal deficit is important, it must not come at the cost of weakening the financial strength and institutional firepower of the Reserve Bank of India. RBI serves as the nation's economic shock absorber and monetary stabiliser during periods of crisis. Excessive extraction of reserves may weaken the long-term resilience and economic immunity of the country." Cheema said at a time when the currency and global financial environment remain under pressure, the RBI should ideally retain a stronger financial buffer with itself. "The central bank must preserve adequate reserves and policy flexibility to safeguard financial stability," he added. Cheema added, "I urge the RBI governor to ensure that the institutional independence, strength and long-term credibility of the Reserve Bank of India remain paramount. India cannot aspire to build a strong and resilient economy with a weakened central bank."