In contrast, the central bank's income from domestic investments declined by 3.2 per cent (Rs 274.90 crore) to Rs 8,396.30 crore in 1997-98. This was due to a sharp decline in discount earnings, partially offset by an increase in interest earnings on holdings of government securities.

The RBI's total expenditure rose by 25.8 per cent to Rs 4,762.11 crore in 1997-98. The rise in expenditure was largely due to an increase in security printing and establishment expenditure.

Earnings from foreign currency assets increased by Rs 1,101.68 crore to Rs 5,687.34 crore. This was due mainly to a higher average level of foreign currency assets of Rs 96,659 crore in 1997-98 against Rs 72,085 crore in 1996-97.

However, the net earning on foreign currency assets declined to 5.88 percent in 1997-98 from 6.36 per cent in 1996-97. This can be attributed mainly to a decrease in exchange gain to Rs 269.07 crore against Rs 784.77 crore in the previous year.

As far as domestic investments are concerned, the issue of ad-hoc and tap treasury bills was discontinued with effect from the start of 1997-98 and outstanding ad-hoc and tap treasury bills as on March, 1997, were converted into special securities. This resulted in increased earnings during 1997-98 by way of interest with a corresponding decline in discount earnings.

The increase in interest earnings is also attributable to devolvement and private placement of government securities of Rs 22,730 crore in 1997-98 against Rs 11,984 crore in 1996-97. The net sales of government securities through open-market operations, which was lower at Rs 5,922 crore against Rs 11,544 crore during the previous year, also contributed to the increase in interest earnings.

The subsequent conversions of special securities into marketable securities with ahigher coupon rate and enhanced rate of interest on ways and means advances (WMA) to the central government also contributed to the improved earnings of the Reserve Bank. The enlarged repo operations during the year, however, entailed interest costs and to that extent there was a reduction in the interest income.

On the expenditure side, interest payment during the year went marginally up by 4.5 per cent (Rs 86.63 crore) to Rs 1,999.23 crore.

The increase in interest payment is due to an overall increase in the net demand and time liabilities of the scheduled commercial banks, besides payment of interest on the entire cash reserve ratio balances at 4 per cent with effect from October 25, 1997. However, the increase in interest payment to scheduled banks by Rs 118.72 crore is partly offset by reduced outgo on account of payment in lieu of service charges on borrowings from the International Monetary Fund payable to the central government following a reduction in the liability to IMF.