RBI, Government tussle. "All the taxes to go up by 35%" ?

• Tax collections haven't been up to mark: In 2018-2019.

•  Income tax collection has to go up by 34.3%, GST by 33.3% and Custom duty by 23.3%

                From last few years, there has been a tug of war between Reserve Bank of India and Central Government, as Government wants to access to bank’s “excess reserve”.  A committee led by former RBI Governor Bimal Jalan, constituted to look into the matter, recently deferred submitting its report for the third time, and will submit it after the Budget on July 5.

Closer look at tussle:-

1) RBI makes huge profit from its liabilities (primarily the money that it prints). It also earns interest in its assets, be it foreign or domestic bonds. Part of these profits are set aside as equity or reserves, to maintain creditworthiness. The remaining is handed over to Government as dividend.

2) The profit that is retained goes into the equity or reserves of the RBI. The government wants access to this because its own finances are in a huge mess. Tax collections haven't been up to mark: In 2018-2019, the five major taxes (corporation tax, income tax, Goods and Services Tax, union excise duty and customs duty) were expected to bring 21.26 lakh crore, but eventually brought 19.32 lakh crore. Real-time indicators show that the economy has slowed since the beginning of this financial year.

Hence governments chance of increasing its tax collections are dim. If it wants to meet the tax target that it set in the interim budget in February,” Income tax collection has to go up by 34.3%, GST by 33.3% and Custom duty by 23.3%”, which is nearly impossible to implement at a sudden.

To replace this, Government is looking for one time transfer of RBI reserves.

But there is still a problem. If the government accesses the excess reserves at one go to finance expanses this year, where will it get money next year?

Government expense usually only goes up. This is a bigger worry.

So, it won’t be wrong to say if condition goes the same way that government might not increase taxes by such amount but it is surely going to increase taxes that will certainly go heavy for pocket.