He said the only proposal "under discussion is to fix appropriate economic capital framework of RBI".
"If the RBI either defies the government or the RBI governor resigns, in either events, the outcome will be catastrophic", he said. Garg said there was "misinformed speculation" in the media, and that the government's fiscal math was "completely on track".
The Congress party had latched on to the issue with former finance minister P Chidambaram accusing the government of demanding Rs 1 lakh crore from the reserves of the central bank to accelerate spending against the backdrop of a tight fiscal situation.
He added that it would be hard to quantify a percentage amount for how much of RBI's profits should be transferred to its reserves.
"The government stares at a fiscal deficit crisis". The statement from North Block comes ahead of the RBI's November 19 board meet, which is expected to take up the unfinished agenda of last month's meeting that had ended in a stalemate.
Garg categorically refuted the reported proposal to ask RBI to transfer Rs 3.6 or 1 lakh crore, saying that the only proposal that was under discussion by the government and the RBI was regarding fixing an appropriate economic capital framework of the RBI.
Officials in the know said the communication between the government and the RBI did not mention any amount to be transferred and only raises the issue about norms. "From 2014-'15 onwards, government has succeeded in bringing it down substantially", he added. "We will end FY2018-19 with a fiscal deficit of 3.3 per cent. Government has actually foregone Rs 70,000 crore of budgeted market borrowing this year".
These are valuation reserves for dealing with volatility in foreign exchange holdings and government securities, asset development reserves for taking care of depreciation and other asset-related costs, and a contingency reserve to take care of any unforeseen emergencies. He is also a former chairman of the Institute of Chartered Accountants of India.
However, the government clarified earlier today that the above-mentioned reports were a product of speculation and that it had no such demand from the RBI.