Subhash Chandra Garg's exit: Jalan panel seeks RBI's views on ECF report

Subhash Chandra Garg
Former Finance and Economic Affairs Secretary Subhash Chandra Garg had refused to sign on the report finalised by the former Reserve Bank of India (RBI) governor Bimal Jalan-led committee reviewing the central bank’s economic capital framework (ECF), sources familiar with the development said.


The panel has now sought the RBI's views on the way forward as Garg leaves the ministry.


“The committee is facing a peculiar situation. Garg didn't agree to the committee's findings and didn't sign the report in its concluding meeting. He told the panel that he will take up the matter separately with the RBI's central board, leading to a stalemate,” said a source.


Garg didn't respond to a text message sent by Business Standard.


All the committee members, including Garg, had last met on July 18 in the RBI's office in New Delhi to finalise the report.


A panel member, requesting anonymity, confirmed that some of the committee members met on Thursday and decided to consult the RBI on the way forward. There are two possible options before the committee: Submit the report without Garg's signatures or induct the new economic affairs secretary, Atanu Chakraborty, who took charge on Thursday, into the panel and hold further meetings to finalise the report.

However, the committee is running out of time as the RBI's central board meeting is scheduled to be held on August 16, when the regulator will finalise its balance sheet and decide upon the dividend transfers to the central government.

The committee has to submit its report to the RBI governor (Shaktikanta Das) well in advance. The report will be circulated among the board members, since it was a board-appointed committee, before being discussed in the August 16 meeting,” said a third person aware of the development.

Except Garg, the committee was largely unanimous in its view of a ‘nominal’ surplus transfer to the central government from the RBI in a phased manner. 

According to sources, the report has proposed a formula for a nominal transfer of a portion of the RBI’s reserves to the government in a period of three-five years. 

Initially, Garg was expecting a transfer of around Rs 3 trillion from the RBI’s reserve funds, which was at the heart of a conflict between the regulator and the government last year and was one of the few reasons that prompted Urjit Patel to resign as the RBI Governor.

It was on Garg's insistence that the the central board of the RBI formed a six-member committee — headed by Jalan and co-chaired by former RBI deputy governor Rakesh Mohan — in December to review the central bank’s economic capital framework.

But during the committee meetings, Garg had put his foot down and insisted upon a one-time surplus transfer from the RBI to the government, according to sources, and the matter had even reached the Prime Minister's Office (PMO).

On June 24, days before the Union Budget was presented by Finance Minister Nirmala Sitharaman, Garg skipped the panel's meeting, which was supposed to be final. This was seen as a mark of protest by the committee members who had reached out to Garg for a truce.

Garg was even expected to submit a dissent note to the committee on its findings.

For this financial year, the government has accounted for around Rs 20,000 crore as “additional dividend” from the RBI, a finance ministry official said. This, the official said, is unlikely to happen.

In the Receipts Budget, allocation towards the “dividend or surplus of the RBI, nationalised banks and financial institutions” was increased by Rs 23,130 crore to Rs 1.06 trillion in 2019-20, compared to the Interim Budget. 

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