Mumbai: The Reserve Bank of India’s (RBI) board on Wednesday approved the transfer of record Rs 2.11 lakh crore as dividend to the Central government for accounting year 2023-2024. This is the highest ever surplus paid by the central bank to the government and is a 141 per cent jump from Rs 87420 crore dividend paid in the financial year ended March 2023. The risk provisioning under the contingent risk buffer has been hiked to 6.5 per cent of the RBI’s balance sheet, from 6 per cent in FY23 to contain volatility in the financial system. The windfall will help the government hit its fiscal deficit target of 5.1 per cent of GDP for FY25. The newly elected government would also have a higher amount to spend.
The RBI distributes dividend to the government from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency. One of the main reason leading to a substantial surplus transfer this time is the notable rise in interest earnings from the RBI’s foreign exchange assets, which has been driven by the US Federal Reserve’s aggressive interest rate hikes in recent years. The amount of Rs. 2.11 lakh crore is well above the budgeted figure of Rs 1.5 lakh crore in the Interim Budget for FY2025 under dividends and profits, which includes dividends from public sector institutions. The nation’s benchmark 10-year bond yield dropped 4 bps to 7 per cent following this announcement.
Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd said, “The higher-than-budgeted RBI surplus transfer would help to boost the GoI’s resource envelope in FY2025, allowing for enhanced expenditures or a sharper fiscal consolidation than what was pencilled into the Interim Budget for FY2025. Increasing the funds available for capex would certainly boost the quality of the fiscal deficit. However, the additional spending may be difficult to be incurred within the 8-odd months left after the Final Budget is presented and approved by Parliament.”
The decision on the dividend payment was taken in the 608th meeting of the Central Board of Directors of RBI, headed by Governor Shaktikanta Das, held in Mumbai. The Board reviewed the global and domestic economic scenario, including risks to the outlook and also discussed the working of the Reserve Bank during the year April 2023 – March 2024. It also approved the Reserve Bank’s Annual Report and Financial Statements for the year 2023-24.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, “RBI is not a commercial organisation that earns profits. But it has a huge income. RBI earns huge income from seigniorage, i.e, printing of currency and putting that currency into circulation. The cost of printing a Rs 500 note is around Rs 2. So hen RBI prints it and puts it into circulation, it makes a profit of Rs 498.”
“RBI subscribes to the bonds issued by the Government of India by printing currency and earns interest on that. The government pays interest by taxing the people. So the money should be spent on people’s welfare. That’s why part of RBI’s surpluses are transferred to the government for meeting public expenditure,” added Vijaykumar.
