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Indian Express
03-06-2025
- Business
- Indian Express
RBI's surplus transfer to govt: All you need to know for UPSC Exam
Take a look at the essential events, concepts, terms, quotes, or phenomena every day and brush up your knowledge. Here's your knowledge nugget for today on RBI's surplus transfer to govt. (Relevance: Every aspect of the RBI, from its origin, structure, and key functions to its evolving policies, holds importance for UPSC CSE. Previously, several questions have been asked on this topic. This year's UPSC Prelims also had a question on the RBI's functions, which presents the RBI is an evergreen topic in the economy section that aspirants must prepare comprehensively.) The Board of the Reserve Bank of India (RBI) on May 23 approved a record surplus transfer, or dividend, of Rs 2.69 lakh crore to the Central Government for the accounting year 2024-25. It followed a meeting of the central board of directors of the RBI on May 15. The board reviewed the Economic Capital Framework (ECF), which is used to determine risk provisioning and surplus distribution by the central bank to the government. In 2023-24, the RBI had transferred the surplus of Rs 2.11 lakh crore. Unlike the banks it regulates, the RBI isn't a company that announces a dividend. In this context, it becomes essential to understand that how does the transfer of RBI's surplus work out and what are the functions of RBI. 1. The RBI as a central bank is not only mandated to keep inflation or prices in check through monetary policy, but it is also supposed to manage the borrowings of the Government of India and state governments; supervise or regulate banks and non-banking finance companies; and manage the currency and payment systems. 2. While carrying out these functions or operations, the RBI registers profits. Generally, the central bank's income comes from the: (i) Returns earned on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks. (ii) Interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight. (ii) It claims a management commission on handling the borrowings of state governments and the central government. 4. Its expenditure is mainly on the printing of currency notes and staff, besides the commission it gives to banks for undertaking transactions on behalf of the government across the country, and to primary dealers, including banks, for underwriting some of these borrowings. 1. The RBI isn't a commercial organisation like the banks or other companies that are owned or controlled by the government – it does not, as such, pay a 'dividend' to the owner out of the profits it generates. 2. Although the RBI was promoted as a private shareholders' bank in 1935 with a paid-up capital of Rs 5 crore, the government nationalised it in January 1949, making the sovereign its 'owner'. 3. What the central bank does, therefore, is transfer the 'surplus' – that is, the excess of income over expenditure – to the government, in accordance with Section 47 (Allocation of Surplus Profits) of the Reserve Bank of India Act, 1934: After making provision for bad and doubtful debts, depreciation in assets, contributions to staff and superannuation fund [and for all other matters for which] provision is to be made by or under this Act or which are usually provided for by bankers, the balance, of the profits shall be paid to the Central Government. 4. The Central Board of the RBI does this in early August, after the July-June accounting year is over. 1. In 2013, a technical committee of the RBI Board, headed by Y. H. Malegam, reviewed the adequacy of reserves and a surplus distribution policy and recommended a higher transfer to the government. 2. Earlier, the RBI transferred part of the surplus to the Contingency Fund, to meet unexpected and unforeseen contingencies, and to the Asset Development Fund, to meet internal capital expenditure and investments in its subsidiaries, in keeping with the recommendation of a committee to build contingency reserves of 12% of its balance sheet. 7. But after the Malegam committee made its recommendation, in 2013-14, the RBI's transfer of surplus to the government as a percentage of gross income (less expenditure) shot up to 99.99% from 53.40% in 2012-13. 1. Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a six-member Monetary Policy Committee to determine the policy interest rate required to achieve the inflation target. The first such MPC was constituted on September 29, 2016. 2. Section 45ZB lays down that 'the Monetary Policy Committee shall determine the Policy Rate required to achieve the inflation target', and that 'the decision of the Monetary Policy Committee shall be binding on the Bank'. 3. The MPC fixes the benchmark interest rate — or the base or reference rate that is used to set other interest rates — in India. The primary objective of the RBI's monetary policy is to maintain price stability while keeping in mind the objective of growth. Price stability is a necessary precondition to sustainable growth. 4. Section 45ZB says the MPC shall consist of the RBI Governor as its ex officio chairperson, the Deputy Governor in charge of monetary policy, an officer of the Bank to be nominated by the Central Board and three persons to be appointed by the central government. The last category of appointments must be from 'persons of ability, integrity, and standing, having knowledge and experience in the field of economics or banking or finance or monetary policy'. (Section 45ZC) 5. Notably, each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote. (1) Which of the following are the sources of income for the Reserve Bank of India? (UPSC CSE 2025) I. Buying and selling Government bonds II. Buying and selling foreign currency III. Pension fund management IV. Lending to private companies V. Printing and distributing currency notes Select the correct answer using the code given below. (a) I and II only (b) II, III and IV (c) I, III, IV and V (d), II and V (2) With reference to the Monetary Policy Committee (MPC), which of the statements given below is/are correct? 1. The MPC is required to meet at least four times in a year. 2. It determines the policy repo rate required to achieve the inflation target. 3. There is no quorum for the MPC meeting. 4. It is an eight-member committee fully constituted by the Reserve Bank of India. Select the correct answer using the codes given below: (a) 1, 2 and 3 (b) 3 and 4 only (c) 1 and 2 only (d) 2 and 4 only (Sources: RBI approves record transfer 'surplus' to govt: Why does this transfer happen, and how?) Subscribe to our UPSC newsletter. Stay updated with the latest UPSC articles by joining our Telegram channel – Indian Express UPSC Hub, and follow us on Instagram and X. 🚨 Click Here to read the UPSC Essentials magazine for May 2025. Share your views and suggestions in the comment box or at
Indian Express
10-05-2025
- Business
- Indian Express
Pakistan gets IMF tranche but economy too stretched to sustain long standoff
The Board of the International Monetary Fund Friday cleared $2.3 billion in funding for cash-strapped Pakistan, even as New Delhi abstained from the vote after having firmly opposed the move stating providing funds to a country that supports cross border terrorism carries reputational risks and undermines international norms. The lifeline notwithstanding, high debt and perilously low foreign exchange reserves significantly add to the fragility of the Pakistan economy, which is grappling with an almost perennial balance of payment crisis and high inflation in recent years. Its external debt jumped to over $130 billion in 2024, with more than a fifth of this estimated to be owned by its key ally China. Its forex reserves are pegged at a little over $15 billion, capable of paying for just about three months of imports. The forex reserves remain low relative to funding needs, with over $22 billion of public external debt, including nearly $13 billion in bilateral deposits, maturing in FY25, as per a Fitch report in February. IMF Board approved the first review of Pakistan's economic reform program under the EFF, enabling a disbursement of ~ $1 billion, reflecting strong program implementation which has contributed to continuing economic recovery. — IMF (@IMFNews) May 9, 2025 On Thursday, the Ministry of External Affairs said it would ask the IMF board members to look 'deep within' and take facts into account before generously bailing out Pakistan. In such a dire situation, a money-guzzling conflict with India should be the last thing on a beleaguered Islamabad's mind, as it would have to essentially fund any long-drawn-out conflict with borrowed money. And while a prolonged military conflict with Pakistan is bound to impact India to some extent, the world's New Delhi is far more equipped to handle the economic impact. These crucial points have been underscored by experts and analysts more than once. In fact, just two days before Operation Sindoor, Moody's Ratings cautioned that 'sustained escalation in tensions with India would likely weigh on Pakistan's growth and hamper the government's ongoing fiscal consolidation, setting back Pakistan's progress in achieving macroeconomic stability'. The global ratings agency said that a persistent increase in tensions with India could also impair Pakistan's access to external financing and pressure the country's forex reserves, which remain 'well below what is required to meet its external debt payment needs for the next few years'. With elevated debt levels and low reserve buffers, Islamabad had earlier managed to get a bailout package from the IMF in September 2024 with the approval of a $7-billion loan, following which its economy has shown some early signs of a recovery from the brink of a collapse. As per the latest South Asia Development Update released in April by the IMF, Pakistan's economy has been recovering from a combination of natural disasters, external pressures, and inflation. While inflation has slowed more quickly than expected along with strong imports of capital goods and high consumer confidence suggesting a pickup in private sector growth, the incoming data on economic activity have been weaker than expected, the IMF said. Economic growth of Pakistan is projected to rise to 3.1 per cent in the financial year 2025-26 from 2.7 per cent in the financial year 2024-25, 2.5 per cent in 2023-24 and a contraction of 0.2 per cent in 2022-23. The ongoing 37-month long Extended Fund Facility programme of the IMF consists of six reviews over the span of the bailout. The other multilateral bank, the World Bank, also expects Pakistan's economic activity to grow 3.2 per cent in FY26 and 3.5 per cent in FY27. It also flagged that Pakistan's growth will likely remain constrained by tight macroeconomic policies focused on rebuilding fiscal and external buffers and mitigating risks to economic imbalances. Potential macroeconomic policy slippages — driven by pressures to ease policies — along with geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism could undermine the 'hard-won macroeconomic stability', the IMF had pointed out in its statement in March this year after the first staff-level review of the loan facility extended to Pakistan. Funding from other multilateral institutions like the World Bank and the Asian Development Bank is also crucial for Pakistan's economic revival and securing it would be a challenge as India steps up its ante by seeking support from all MDBs. When the bailout package was secured by Pakistan last year, the IMF in its report in October had assessed the overall risk of sovereign stress for the country as 'high', saying that it reflected 'a high level of vulnerability from elevated debt and gross financing needs and low reserve buffers'. 'Notwithstanding the new government's intent to deepen reforms under a new Fund-supported program, political uncertainty remains significant, and pressures for easing policies and providing tax concessions and subsidies are strong. A resurgence in political or social tensions could weigh on policy and reform implementation. Policy slippages, including particularly on needed revenue measures, together with lower external financing, could undermine the narrow path to debt sustainability, given the high level of gross financing needs, and place pressure on the exchange rate and on banks to finance the government,' the IMF report had said. As for the impact on India, Moody's said: 'Comparatively, the macroeconomic conditions in India would be stable, bolstered by moderating but still high levels of growth amid strong public investment and healthy private consumption. In a scenario of sustained escalation in localized tensions, we do not expect major disruptions to India's economic activity because it has minimal economic relations with Pakistan'. The ratings agency, however, added that higher defence spending in such an eventuality would potentially weigh on New Delhi's fiscal strength and slow its fiscal consolidation. Experts and multilateral institutions have repeatedly flagged major structural problems and other risks plaguing the country's economy that have largely remained unaddressed. These include high fiscal and current account deficits, political instability, low agriculture and industrial productivity, protectionist trade policies, heavy government interference in business, a large and inefficient public sector, a financially unsustainable and import-dependent energy sector, weak exports, and a small taxpayer base, among others. Natural calamities like widespread floods have also exacerbated Pakistan's economic woes in recent years. Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there. ... Read More Sukalp Sharma is a Senior Assistant Editor with The Indian Express and writes on a host of subjects and sectors, notably energy and aviation. He has over 13 years of experience in journalism with a body of work spanning areas like politics, development, equity markets, corporates, trade, and economic policy. He considers himself an above-average photographer, which goes well with his love for travel. ... Read More
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Korea Herald
07-05-2025
- Business
- Korea Herald
[Hello Thailand] From EVs to smart cities: Thailand seeks to unlock growth potential with Korea
South Korea and Thailand could seek synergy in diverse sectors, from electronic vehicle manufacturing to smart city development to waste management, according to senior executives of the Southeast Asian country's state economic development authorities. The Korea Herald interviewed three senior executives while they were visiting Korea for the Ignite Thailand-Korea Business Forum held last month. The executives highlighted that Thailand can offer streamlined investment procedures for foreign capital and that the country seeks integrated, balanced growth. 'Investment in Thailand costs less, takes less time, but yields high efficiency,' said Yuthasak Supasorn, chair of the Board of the Industrial Estate Authority of Thailand. The IEAT is responsible for developing and managing industrial estates, which are specifically designated areas for industrial activities. There are roughly 70 industrial estates across the country. Supasorn highlighted that investors could receive 'triple incentives' by selecting the right investment destination in Thailand. 'The Board of Investment can provide incentives for choosing Thailand as an investment destination. If a foreign company invests in Thailand's eastern seaboard, there will be incentives from the Eastern Economic Corridor. If the investor proceeds with the investment through the IEAT, there will be additional benefits. It is a triple incentive,' he said. While sharing the desire to form 'sincere friendship' with Korean companies, Supasorn suggested a potential partnership in the burgeoning electric vehicle sector. "Thailand is the powerhouse of automobile production in ASEAN (Association of Southeast Asian Nations), and Korea has cutting-edge technologies. The two countries can complement each other and create synergy,' he said. Thailand's upcoming Eastern Economic Corridor Capital City (EECiti) project, a smart city development situated near the popular beach resort city of Pattaya, was inspired by the city of Songdo in Incheon, Chula Sukmanop, secretary-general of the Eastern Economic Corridor Office of Thailand, said. Sukmanop highlighted the need for an integrated approach in city development projects, expanding the scope of development projects to surrounding facilities. 'When we are discussing high-speed trains, we do not just look at the train but the stations as well. We have to develop a transit-oriented development, where the stations can be developed for commercial purposes,' he said. Korean companies could set up consortia to participate in the development, which will be pursued in packages of energy, electricity, water, waste management and communication through the form of a public-private partnership, he suggested. Sukmanop shared his plan to meet with a local waste management company during his visit to Seoul. As Thailand grows, waste-to-energy transition will be a key technology for the country, he said. 'I will try to talk to many Korean companies, as we know that Korea has leading companies in this field,' he said. "Thailand does not compete with low-cost labor anymore. It aspires to be not just a manufacturing hub but to become a hub for research, design and services in Southeast Asia," Suthiket Thatpitakkul, deputy secretary-general of the Board of Investment of Thailand, said. The interview was conducted in Thai, translated to Korean on the scene. The Board of Investment of Thailand is responsible for promoting investment in Thailand by offering incentives and facilitating services. The institution pursues a 'transparent yet flexible' investment policy, according to Thatpitakkul. "Through a one-stop service, the BOI supports streamlining the foreign investment approval process. The BOI is not just about attracting investments, but it also cares about managing them. It can act as a middleman to resolve difficulties that investors face in Thailand,' he said, promising a thorough after-service. While countries such as Japan and China have continuously invested in Thailand, Thatpitakkul envisions that Korea could expand its investment in the country. 'Thailand cares for balance. Korea's investment can be relatively small, but what is important is that it has continued throughout the years. The BOI can support Korea in enlarging its investment in Thailand,' he said.
