India‘s central bank has announced a $24bn windfall for the cash-strapped government, giving a much-needed boost to Prime Minister Narendra Modi as he seeks to kick-start growth in Asia’s third-biggest economy.
But the payout will likely stoke fresh concerns about the Reserve Bank of India’s independence following a standoff that has seen top officials quit amid accusations of government interference.
Modi has come under increasing pressure to fire up growth, which has slowed in each of the past three quarters – losing India its status as the world’s fastest-growing economy – with unemployment hitting its highest level since the 1970s.
The auto sector has been particularly badly hit, with car sales plunging in July for the ninth month running, while weak consumer spending has hit demand for everything from biscuits to hair oil.
The RBI said it approved a transfer of 1.76 trillion rupees ($24.4bn) to government coffers, including a dividend of 1.23 trillion rupees ($17.1bn) and 526 billion rupees ($7.3bn) in excess reserves following the adoption of a new methodology for assessing market risk.
Monday’s announcement came days after Finance Minister Nirmala Sitharaman announced a slew of measures to help the economy, including bringing forward a $10bn liquidity lifeline for banks and rolling back an extra levy on equity sales that had spooked foreign investors.
Sujan Hajra, economist at Anand Rathi Securities, said the latest announcement is a “positive move” for the economy and public finances.
“As the RBI said, despite this fund transfer, India will still have one of the best capitalisations of the central banks globally and it does not reflect poorly on either the government or the central bank,” Hajra told AFP.
Ashutosh Datar, an independent economist from Mumbai, agreed, telling AFP: “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.
Governor Urjit Patel resigned in December following a public spat with Modi’s administration – which was re-elected earlier this year – accusing the government of trying to undermine the bank’s independence.
He was followed in June by deputy governor Viral Acharaya citing the same reasons, although the bank insisted his move was unrelated and that he left for personal reasons.