Editorial 1 : Crime in Pune
Introduction: The tragedy of what happened in the early hours of May 19 in Kalyani Nagar, Pune, is stark. Two lives were lost when a car, allegedly driven by a 17-year-old, crashed into a bike. Aneesh Awadhiya, who was driving the bike, and Ashwini Koshta, who was riding pillion, died on the spot.
Yes, to due process of law, no to mob justice
- Reports that the minor who was driving was under the influence of alcohol when he lost control of the car and that he was subsequently let off on bail under the condition that he “work with traffic police of Yerwada for 15 days” and “write an essay on the accident”, have provoked loud outrage.
- The juvenile has now been remanded to an observation home till June 5.
- Going ahead, in this case, as in others, it is necessary to follow due process.
- But care must be taken to insulate it, not only from any undue influence that may be exercised on behalf of the accused, but also, on the other hand, from the calls for mob justice.
Privileged Suspect, Delayed Justice?
- Since that Sunday morning, questions have been raised, among others, about the local MLA visiting the police station where the teenager was taken, after he received a call from the latter’s father.
- Accusing fingers are being pointed, too, at a two-hour delay in taking a blood sample from the accused.
- These concerns invoke the juvenile’s privileged background — his father is a prominent realtor and the car he was driving is a Porsche — and suggest that this could lead to a miscarriage of justice.
- They should certainly be addressed.
- Yet, the furore must not become a pretext to short-circuit a thorough investigation or to paper over the fact that the accused is a 17-year-old.
The administration’s action after public uproar
- Even as the law takes its course in this case, the larger complicities that it has pointed to must not be ignored.
- The police have booked the father for allowing his minor son to consume alcohol and drive while intoxicated.
- They have also sealed the two restaurants that served alcohol to the teenager and arrested three people connected to the establishments.
What could be a way forward to deal with such cases in the future?
- A country, where over 50 percent of the population is under the age of 25, must ask how it can be better prepared to cope with the problem of underage drinking and driving.
- Any solution can only emerge from a wider, and more open conversation that includes those who run bars, pubs and other businesses that sell alcohol, as well as young people and their parents.
Conclusion: Even as accountability is fixed for the deaths in Pune, the incident must also lead to the setting up of more guardrails.
Editorial 2 : A windfall gain
Introduction: On Wednesday, the central board of the Reserve Bank of India approved the transfer of Rs 2.1 lakh crore as surplus to the central government.
RBI Strengthens Buffer, Transfers Record Surplus to Government
- This is a fiscal bonanza for the Centre as it is considerably higher than what was factored in earlier — in the interim Union budget 2024-25, the government had estimated the dividend/surplus of RBI, nationalised banks and financial institutions at Rs 1.02 lakh crore.
- Alongside, the central board has also decided to increase the contingency risk buffer to 6.5 per cent of the central bank’s balance sheet in 2023-24, up from 6 per cent in 2022-23.
- This buffer is meant for a “rainy day”, a financial stability crisis, and is maintained by the central bank, considering “its role as lender of last resort”.
- Both the surplus and the buffer have been determined on the basis of the economic capital framework, as recommended by the expert committee headed by former RBI Governor Bimal Jalan.
Bimal Jalan Committee recommendations
- Reserve Bank of India (RBI) had constituted an “Expert Committee to Review the Extant Economic Capital Framework of the RBI” under the Chairmanship of Dr. Bimal Jalan.
- Major recommendations of the Committee with regard to risk provisioning and surplus distribution are as follows:
- RBI’s economic capital: A clearer distinction between the two components of economic capital (realized equity and revaluation balances) was recommended.
- Realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings.
- Revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable.
- Risk provisioning for market risk: It has recommended the adoption of Expected Shortfall (ES) methodology under stressed conditions (in place of the extant Stressed-Value at Risk) for measuring the RBI’s market risk. It has recommended the adoption of a target of ES 99.5 % confidence level (CL).
- Size of Realized Equity: Contingent Risk Buffer (CRB) – made primarily from retained earnings – has been recommended to be maintained within a range of 6.5 % to 5.5 % of the RBI’s balance sheet, comprising 5.5 to 4.5 % for monetary and financial stability risks and 1.0 % for credit and operational risks.
- Surplus Distribution Policy: It has recommended a surplus distribution policy which targets the level of realized equity to be maintained by the RBI. Under it, only if realized equity is above its requirement, will the entire net income be transferable to the Government.
- It has also suggested that the RBI’s economic capital framework may be periodically reviewed after every five years.
How has RBI gained excessive surplus this year?
- The higher than expected transfer could be a consequence of an increase in interest income from the central bank’s foreign and domestic assets and forex transactions.
How can the government use the surplus transfer from RBI?
- The transfer has created considerable fiscal space for the next government when it presents the full budget for the year after the ongoing national elections.
- This space, which works out to around 0.4 per cent of GDP, can be utilised in either of the following ways.
- It can use this to bring about a steeper decline in the government’s fiscal deficit than what has already been outlined — in the interim budget, the government had promised to bring down its deficit from 5.8 per cent of GDP in 2023-24 to 5.1 per cent in 2024-25.
- A higher transfer could help offset possible revenue shortfalls in areas such as disinvestment.
- The next government could also choose to increase the amount allocated for capital expenditure in the interim budget — the budgeted capex was pegged at Rs 11.1 lakh crore or 3.4 per cent of GDP.
- Or it could opt for a combination of the two. The impact is already being felt in the markets with the 10-year bond yield falling.
Staying the Course: Fiscal Consolidation Alongside Capex Increase
- In the Union budget 2021-22, the government, while announcing the deficit of 9.5 per cent of GDP for 2020-21, had declared its intent to bring it down to below 4.5 per cent by 2025-26.
- In subsequent budgets, it has reaffirmed its commitment, and has stuck to the path of fiscal consolidation.
- Alongside, it has steadily increased its allocation for capital expenditure.
- The centre’s capex to GDP ratio has edged upwards from 2.5 per cent of GDP in 2021-22 to 3.23 per cent in 2023-24, and further to 3.4 per cent in 2024-25 (interim budget), improving the quality of its spending.
Conclusion: The amount of RBI transfer to government exceeds government expectations, creates space to increase capital spending, reduce deficit. The next government must use this windfall to reduce fiscal deficit or increase Capex spending.