How India should Use Fund Received from RBI?

Government has received Rs 1.76 lac crore from the RBI. Since the government had already budgeted receipt of Rs 90,000 crore, the higher dividend is only Rs 95,414 crore. ( Refer to report: RBI to transfer Rs 1.76 lakh crore from surplus reserve to government).

Major Economic Problems for India Today

The major economic problems for India today are:

• Falling GDP growth rate.
• Rising unemployment.
• Falling domestic demand.

Possible Usages of Fund Received

• The best usage of the fund to fight the above stated problems is to use it as capital expenditure to increase infrastructure spending, thereby promoting growth, generating employment and raising aggregate demand. This is not much of an amount to fight the problem, but any amount would be of some help.
• The next best usage of the fund would be to capitalize the banks to improve the state of liquidity in the market.
• The worst usage would be to meet the revenue shortfall of GST & tax and try to keep the fiscal deficit in check.

Logic for Best Usage?

The logic for suggesting using the fund for creation of infrastructure is that it will impact the major economic problems that Indians are facing. Moreover, the inflation rate is low & there is no immediate fear of inflation rising, particularly because the industry is having unutilised capacity varying from 50–80%. In this scenario the production costs may come down rather than go up when industry comes closer to utilising 100% capacity. Please read these:

• Capacity Utilisation | Business | tutor2u
• Economy on standstill? Growth of 8 core sectors slows to 0.2 per cent in June

Expectations from Modi Government

Seeing the past record, I expect the Modi government to make the worst usage of the fund received to meet the revenue shortfall of the government and keep fiscal deficit and inflation in check. Thus, this amount may not affect GDP growth, unemployment or problem of domestic demand in any way.

Request/Hope

My request/hope from the government is to increase the capital expenditure to help the economy and Indians seeking jobs. Please read this: Keynes’ Theory of Investment Multiplier (With Diagram)