Thread by @arrychary

So the Jalan Committee recommendations are finally out.. phew... and the actual capital transfer of 50k crs is minuscule and very likely a one-time .. i had written about this last Dec ..#Thread @dugalira @ananthng @IndradeepKhan @CafeEconomics qasl.com/mailer/Q-India…

https://twitter.com/arrychary/status/1142709970892288000

The 1.76 trillion number needs to seen as a sum of 3 numbers.. 28k of it is the interim dividend already paid in March 19; 96k as the further dividend for this year (taking the total dividend to 1.24 trillion) and the rest 52k cr of the jalan committee excess capital transfer ..

From a fiscal perspective, this capital transfer was not budgeted thus the fiscal pressure on the government will ease.. Bond markets should take this positively as its major worry reflecting in the steep term premiums was due the risk on fiscals

The govt fiscal is strained and hopefully they won’t use this excess resource to plan a ‘stimulus package’.. this should be used to plug the shortfall in current fiscal ..

The fact that the RBI board has lowered the contingency reserves to 5.5% to be able to pay this 52k cr this year, should suggest that this is a one time and unless the contingency reserves crosses 6.5%, there won’t be any excess transfer coming through..

One should argue this is indirect monetisation depending on how the excess gets paid.. but as the amount is nowhere close to the initial number of 3 trillion, this is more palatable and many may even argue this as warranted .. also revaluation reserves are untouched..seems fine.

A cross country rudimentary comparison of central bank balance sheets... using which I had argued that of the overall reserves, contingency reserves is not all that high and a large payment thus would have to be made from crystallising the notional revaluation reserves..