Bonanza for Government from RBI

Indian economy is in distress for a long time and all actors are trying to take corrective measures but not able to heal the state of the economy completely. There is a liquidity crunch basically due to less credit creation by lenders. There was a tussle between the government and the central bank over the transfer of the reserve fund that the central bank maintains to meet the contingency liabilities in the future.
RBI transferred 1.76 lakh crore to the government which constitutes reserve amount and dividend. There was a long pending tussle between the government and RBI over the transfer of the excess amount,

LONG TUSSLE

The government wants this money from long back but the central bank always denies saying this is a fund for the emergency situation in the country. This tussle resulted in the resignation of former RBI governor Urjit Patel, by stating the personal reason. The government claim that this money remains idle, if they get it they can use that amount in developmental activities.
Finally, the RBI in consultation with the government of India has constituted a committee to recommend this issue in the chairmanship of former governor of RBI Bimal Jalan and with many professionals consisting of CAs, economist and other key persons. The committee was given the target to look into the economic capital framework of the bank and make suggestions.

WHY RBI MAINTAIN RESERVE?

The central bank is the custodian of the banking sector in the economy and lender of the last resort for the banks. It is the responsibility of RBI to regulate the economy and has enough funds to fight with unforeseen liability. As a central bank is part of the sovereign, ensuring the credibility is as important, if not to the government, as it is to the RBI itself. So it has to maintain some contingent risk buffer to ensure the economy against any tail of risk of financial stability crisis.

Now as per the recommendation of the Jalan committee which provided the limit of maintaining the Economic capital framework between 6.5% to 5.5 %. RBI has accepted all the recommendation and transfers all the funds in excess of  5.5% to the government.

WHAT NEXT??

There is a liquidity crunch in the economy and the government has not specified where he will use this money. It should be used properly that will make the economy grow and improve economic activities. It should not be used in financing resources to meet the fiscal target and infusing in the economy to increase liquidity, it should be used wisely through government schemes that will generate money for the people in the distressed sectors.
This is a good step to use the idle money but if it is done once, if government take money regularly it is not good for the economy in long term as central bank have not enough resources to tackle any sudden liabilities.
After all the central bank is the mirror of the economy and foreign investor look into the health of central bank so the government should use this money judiciously. After all, we all know the story of the goose that laid golden eggs.