November 19, 2018

Why does Modi government want Rs 3.6 lakh crore?

Shankkar Aiyar, Visiting Senior Fellow at IDFC Institute, writes in The New Indian Express on why the finance ministry has asked the RBI for a portion of its reserves. Excerpts:

 

"The  general principle of government budgets is to focus on where the money needs to go—with nary a care for where the money went. Ronald Reagan once quipped that the government always needs the money it gets. Equally, governments always find a need for which they don’t have money. For some time, like many regimes, this government has been engaged in an expedition to find money. There are many theories on the where, what, when, how and why of the treasure hunt. On November 6, 2018, India was informed that the finance ministry had asked the Reserve Bank of India for a portion of its reserves. Then, on November 9, Subhash Garg, Secretary Economic Affairs, tweeted a denial. Normally government denials signal confirmation. 

 

The figure doing the rounds is Rs 3,60,000 crore. The Rs 3 lakh plus figure has been a constant since the 2016 demonetisation. It was believed that note cancellation will deliver a windfall—the then advocate general, Mukul Rohatgi, told the Supreme Court that “between Rs 4 and Rs 5 lakh crore” will not return. As it turned out, 99 plus per cent of the cancelled notes returned to RBI. The second hope balloon was a rapid rise in revenues following the introduction of the GST, which is falling short of targets. 

 

The moot question is what does the government want Rs 3.6 lakh crore for? Two narratives are viral. One is about the need for a blitzkrieg of sops after the five-states polls, to be announced in the run-up to the interim budget. The second narrative revolves around the competing crises and compulsions in the economy—simply, filling the hole in the bucket."

 

Read the full article here.

Topic : State Capacity / In : OP-EDS
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