India’s central bank has announced a US$24 billion windfall for the cash-strapped Indian government, giving a much-needed boost to Indian Prime Minister Narendra Modi as he seeks to kick-start growth in Asia’s third-biggest economy.
However, the payout will likely stoke fresh concerns about the Reserve Bank of India’s (RBI) independence following a standoff that has seen top officials quit amid accusations of government interference.
Modi has come under increasing pressure to fire the economy, which has slowed in each of the past three quarters — losing its status as the world’s fastest growing — with unemployment hitting its highest level since the 1970s.
The auto sector has been particularly badly hit, with car sales plunging last month for the ninth month running, while weak consumer spending has hit demand for everything from biscuits to hair oil.
The RBI said it had approved a transfer of 1.76 trillion rupees (US$24.4 billion) to government coffers, including a dividend of 1.23 trillion rupees and 526 billion rupees in excess reserves following the adoption of a new methodology for assessing market risk.
Monday’s announcement came days after Indian Minister of Finance Nirmala Sitharaman announced a slew of measures to help the economy, including bringing forward a US$10 billion liquidity lifeline for credit-shy banks and rolling back an extra levy on equity sales that had spooked foreign investors.
The latest announcement is a “positive move” for the economy and for public finances, Anand Rathi Securities Ltd economist Sujan Hajra said.
“As the RBI said, despite this fund transfer India will still have one of the best capitalizations of the central banks globally and it does not reflect poorly on either the government or the central bank,” Hajra told reporters.
Ashutosh Datar, an independent economist from Mumbai, agreed: “The amount looks huge, but it is not and there is no raid on RBI reserves.”
However, the bank’s independence has already been called into question after it cut interest rates four times this year to a nine-year low, reportedly under government pressure.
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