TaxTMI 
TaxTMI 
2009 (3) TMI 563
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.... have implications for domestic monetary policy and exchange rate management. In a fully floating exchange rate regime, the exchange rate would adjust itself in accordance with demand and supply conditions in the forex market, obviating the need for intervention by the Central Bank. However, when huge forex inflows are expected, such as in an emerging economy like India, it may well happen that the exchange rate may appreciate significantly, though an appreciation may not automatically restore equilibrium in the balance of payments. While as a matter of practice, Central Banks in all countries intervene in the forex market, in emerging economies, a more intensive approach is warranted in the context of large inflows. Such an intervention is founded on shared experience because in emerging markets like in India, capital inflows are relatively more volatile; driven by sentiment and not necessarily related to fundamentals of markets. Volatile inflows are liable to pose a substantial risk to the economy. Whenever the Central Bank intervenes in the forex market, domestic liquidity is created. The market based approach which is aimed at neutralizing a part or the whole of the liquidity i....
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....abilization Scheme Account'. The account is to be maintained and operated by the Bank at its Central Accounts Section at Nagpur. Clause 9 of the Scheme expressly stipulates that amounts credited to the account shall be appropriated for redemption and for buy back of Treasury Bills and/or dated securities issued under the Scheme. Clause 9 is to the following effect : "9. The amounts so credited into the MSS Account shall be appropriated only for the purpose of redemption and/or buy back of the Treasury Bills and/or dated securities issued under the MSS. The Government is aware that the purpose of issuing these Treasury Bills and/or dated securities namely, market stabilization, would be defeated if the amounts in the said MSS Account are appropriated for any other purpose or expenditure and as such, undertakes not to appropriate or initiate any step to appropriate the amounts in the MSS Account except for the purpose of redemption and/or buy back of the Treasury Bills and/or dated securities issued under the MSS." Clause 10 of the Scheme provides that payment on account of interest and discount shall not be made from the MSS Account. Similarly, receipts due to premium or accru....
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.... manner provided in the Constitution. Article 112 provides for expenditure to be charged on the Consolidated Fund. Sub-clause (g) of Clause 3 of Article 112 permits Parliament by law to charge any other expenditure. The submission is that the Memorandum of Understanding to the extent that it creates a charge on the basis of the Market Stabilization Scheme bonds on the Consolidated Fund, not being a Law of Parliament under Article 112(3) is unlawful. 6. Prayer clause (a) of the Writ Petition implicitly proceeds on the hypothesis that the amount lying in the Market Stabilization Scheme Account is not a part of the Consolidated Fund of India. The very basis for the relief that has been sought is misconceived. Clause 8 of the Memorandum of Understanding between the Reserve Bank of India and the Union Government stipulates that amounts raised under the Market Stabilization Scheme shall form part of the Consolidated Fund of India and be credited to and held in a separate and identifiable cash account, entitled the MSS Account. An affidavit in reply has been filed in these proceedings by the Deputy Director (Budget) in the Department of Economic Affairs of the Union Ministry of Finance....
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....ing account, do not be outside the Consolidated Fund. The borrowings under the Market Stabilization Scheme are stated to be fiscal deficit neutral as the amounts raised are not used for the normal expenditure of the Government, but are kept immobilized in a separate non-interest bearing account with the Reserve Bank, but as part of the Consolidated Fund of India. The interest paid on such borrowings do add to the fiscal, deficit as the expenditure of the Government of India. At this stage, it would also be material to extract from the relevant part of the affidavit filed by the Reserve Bank of India which reads as follows : "The MSS account forms part of the Consolidated Fund of India, hence even assuming for the sake of argument that the funds collected from the sterilization of liquidity by MSS, are deemed to be borrowings as contemplated in Article 266 of the Constitution of India (COI), these borrowings/loans are made/raised on the security of the CFI, in accordance with the requirements of the Article 292 of the COI. In any event the funds raised from the sterilization of liquidity by MSS are only to be used for the purpose of redemption and/or buy back of the treasury bill....
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....troller and Auditor General. The disclosure by the Comptroller and Auditor General in response to the query for information that no specific audit was conducted either in respect of the borrowings or the application of funds under the Market Stabilization Scheme since 2004 does not in our view detract from what has been stated in the affidavit filed on behalf of the Comptroller and Auditor General. The affidavit discloses that under section 23 of the Act the scope and extent of audit is determined by the Comptroller and Auditor General and that the accounts of the Ministry of Finance as well as the appropriation account of the Government of India are audited at regular frequency by the Comptroller and Auditor General. The timing, scope and extent of audit are all matters which fall within the jurisdiction of the Comptroller and Auditor General and this is certainly not a matter on which the Court ought to tread. There is neither a constitutional nor statutory dereliction of duties by the Comptroller and Auditor General and it is undoubtedly for the Comptroller and Auditor General to consider whether and if so to what extent a specific audit should be undertaken. 11. During the c....
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.... liquidity sterilization operations under the Market Stabilization Scheme were in existence during both the above mentioned dates. Hence, according to the Reserve Bank, equating the depletion in the Currency and Gold Revaluation Account to the Market Stabilization Scheme would be inappropriate. The Reserve Bank has also pointed out that in the report of its auditors, the depletion in the Currency and Gold Revaluation Account has been attributed to the depreciation of the US $ against the Indian rupee calculated on an increased level of foreign currency assets during 2006-07. 13. Having examined the grievance that has been urged in the Petition, we have found no reason to grant the reliefs that have been sought before the Court. Before concluding, however, it would be necessary for this Court to define the parameters for judicial intervention in such cases. The parameters which operate in a case such as the present arise both on account of a recourse to legal proceedings being taken in the form of a public interest petition in the first place and the substantive scope of challenge, in the second place, involving as it does a matter which is in the realm of economic policy. The ju....