Ajit Ranade: Why India’s central bank should not turn into a fiscal stabilizer for the government

Subscribe to enjoy similar stories.India’s central bank has quietly become a key pillar of macroeconomic stability. It is not just a monetary authority, but increasingly playing a role as a fiscal shock absorber. This deserves appreciation and caution.The Reserve Bank of India (RBI) has managed an extraordinarily hard decade.

It navigated demonetization, the IL&FS collapse, covid, global supply-chain disruptions, volatile oil prices, geopolitical shocks and sharp capital-flow swings. India avoided a banking collapse, runaway inflation and sovereign instability. That is no small achievement.RBI has also been far more restrained than many advanced-economy central banks in expanding its balance sheet.

After the Global Financial Crisis and the pandemic, the US Federal Reserve, European Central Bank, Bank of England and Bank of Japan massively expanded their balance sheets, even exceeding 80-100% of GDP. Meanwhile, RBI’s balance sheet expanded at a pace commensurate with that of nominal GDP and money supply. Even today, it is barely 25% of GDP.

So India’s monetary expansion has largely been organic and reserve-backed, not reckless ‘money printing’ disconnected from economic growth. It is driven primarily by foreign-exchange reserves and gold holdings rather than monetized sovereign debt. Nearly three-fourths of RBI’s assets are linked to forex and gold reserves.

This makes India’s experience quite different from the post-2008 Western model of central banking.But also note the extraordinary rise in RBI’s surplus transfers to the Union government. In 2023-24, it transferred ₹2.11 trillion, which was 7.6% of the Centre’s overall revenue receipts. The transfer for 2025-26 may be even larger than last year’s record ₹2.69 trillion.