The Central Bank has got three different funds that together comprise its reserves.
Unique and indeed unparalleled, when you find world’s biggest democracy’s Central Bank is playing the role of a saviour to protect its deafening economy. Price rise, high increase rate, currency getting weaker, immensely volatile stock market, surge of unemployment curve, denationalization ploy of government sectors, withdrawal of subsidy in core basic sectors, continuous cutting down of interest rates in small savings and what not, making this apprehension more evident.
This fearfulness has further irritated when countrymen came to know that the Reserve Bank of India is transferring a record Rs 1.76 lakh crore to the Centre. The central board of the RBI decided that the Center would receive a surplus of Rs 1,23,414 crore in the form of an annual dividend and another Rs 52,637 crore by dipping into a pot of reserves that the RBI has traditionally maintained to deal with contingent risks.
Before going into complexity, one has to have some knowledge where do the reserves come from.
To understand what the transfer is we should first know where the funds come from. The Central Bank has got three different funds that together comprise its reserves. They are the Currency and Gold Revaluation Account (CGRA), Contingency Fund (CF) and the Asset Development Fund (ADF).
The CGRA is by far the largest and makes up the significant bulk of the RBI’s reserves. The CF is the second biggest fund. It is designed to meet eventuality from exchange rate operations and monetary policy decisions and is funded in large part from the RBI’s profits. And lastly, the ADF makes up a much smaller share of the reserves.
Now the most debatable and crucial question comes, how much should the RBI keep? The Reserve Bank of India and the Finance Ministry have been fighting with each other on this issue over a long period of time. The RBI is accusing the government about the dangers of violate upon Central Bank’s autonomy. On the other hand, the government countered that the RBI had
reserves far in excess of what the global norms were and, so, should give the excess.