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Why the Government confiscate money from the RBI

What happens suddenly that government has to take money from the head of the banks. It weird that Modi sarkar took money from the RBI. Now as per the economist they think India is having massive trouble in his economy. Recession is almost there in India, Country is in massive economic disaster. That is why RBI approved the transfer of record Rs 1.76 lakh crore dividend and surplus reserves to the government.

From the last many days there was news going on that government is asking money from the RBI. But the bank refused to give the money to the government, the bank said policies don’t allow us. But now RBI has given the money to the government.

Now after this declaration now the debate has been started in India, there are people which are against the decision and some are backing the government.

How RBI make its Money.

RBI buys the bond’s from the open market, from which the bank got interest. This interest helps RBI to boost its bunce.
Government and Bank take money from the RBI based on Credit, In return banks, and the government provides them fees and interest.
RBI holds the foreign currency in his hands, they hold the reserve of the currency. RBI exchange that currency with the local currency. While doing this bank get a commission.
As per the reports of 2017-18 RBI has Rs9 lacs 60,000 crores in his hands.

Now this money belongs to the four different accounts…

From the Currency and Gold reserve banks has 6.95 lacs crores.
Acid development fund in this, RBI has Rs22000,800,11 crore.
Investment account in which RBI has Rs13000, 285 crore
Lastly, a most impotent account of RBI is a contingency fund.
At this time in this account almost have Rs 2.32 lacs of crore and RBI is providing money to the government through this account which is Rs 1.76 lakh crore.

  • Now whats is RBI surplus reserve, RBI’s balance sheet includes reserves comprising assets and earnings, which offers a cushion in times of an economic crisis.
  • While RBI’s balance sheet is largely different from that of a normal company due to its high liabilities towards printing notes, there is another large share which represents the reserves.
  • The move is expected to help the government at a time when India is going through a period of economic slowdown, triggered by slower consumption demand and weaker investment.
  • However, economists remain divided over the new surplus transfer policy. Some economists had assumed that the RBI to release alternate payment to the government instead of everything in one shot.
  • Some economists have welcomed the move as it will help the government counter the shortfall in revenue and tax collection. Since inflationary demand is low, economists think that the move will not have a negative impact in the long run.
  • But some economic also feels providing money to the government, will be led to some kind of race in the ministry’s like Aviation ministry will be the first one to approach the government for the transfer of money for the more beneficial of Air India and Aviation Industry of India.
  • Government of India should use this money for the development of a country, the country gets more money for its GDP growth and made India great Economy superpower.
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