RBI’s record dividend of Rs 2.1 lakh crore to govt can help trim deficit

“The higher dividend represents additional fiscal revenue of 0.4 per cent of GDP. Incorporating potential shortfall in disinvestment receipts and more moderate tax collection growth than budgeted, FY25 fiscal deficit could undershoot Budget Estimate by 0.2 per cent  of GDP,” said Gaura Sen Gupta, Chief Economist, IDFC First Bank.

In a press release, the RBI said, “The Board approved the transfer of Rs 2,10,874 crore as surplus to the Central Government for the accounting year 2023-24.” The decision on the surplus transfer was taken during the 608th meeting of the Central Board of Directors of the Reserve Bank of India, held in Mumbai.

For 2023-24, the RBI’s board also decided to increase the Contingent Risk Buffer (CRB) to 6.5 per cent from 6 per cent in 2022-23 as the economy remains robust and resilient. The CRB is the country’s savings for a ‘rainy day’ (a financial stability crisis) which has been consciously maintained with the RBI in view of its role as Lender of Last Resort (LoLR). It is the component of the RBI’s economic capital required to cover its monetary and financial stability, credit and operational risks.

Bank of Baroda’s Chief Economist Madan Sabnavis said the higher dividend to the government is partly because of an increase in the revenue of the RBI from the variable repo rate (VRR) auctions conducted through the previous year to provide banks funding support amid tight liquidity conditions.

“RBI has been a lender to banks through the year (2023-24) because of the liquidity deficit. Through the VRR auctions, the RBI earned revenue at 6.5 per cent on Rs 1.5-2 lakh crore average deficit,” Sabnavis said. The higher payout will also help the government in managing the fiscal deficit; it can use the additional amount for spending or reduce the fiscal deficit by cutting gross borrowing, he said.

The revaluation gains on forex reserves, higher interest rates on domestic and foreign securities and significantly higher gross sales of foreign exchange can also be attributed to the RBI’s higher dividend to the government, analysts said.

“This is an unexpected bonanza for the government, getting more than Rs 1 lakh crore above the market expectations. It surely will have a positive impact on the government’s fiscal position and liquidity,” said V Ramachandra Reddy, Head Treasury, Karur Vysya Bank.

The RBI normally pays the dividend from the surplus income it earns on investments and valuation changes on its dollar holdings and the fees it gets from printing currency, among others. The rupee’s depreciation against the dollar also weighs on the surplus transfer.

In 2022-23, the RBI’s dividend to the government was Rs 87,416 crore. In 2021-22, the RBI transferred a surplus of Rs 30,307 crore, which was the lowest in 10 years. The RBI transferred Rs 99,122 crore in FY2021 to the government. During the accounting year 2019-20, Rs 57,128 crore of surplus was transferred to the government.

In FY2019, the RBI approved a record transfer of Rs 1.76 lakh crore to the government, which included a surplus or dividend of Rs 1.23 lakh crore, and a one-time transfer of excess provisions amounting to Rs 52,637 crore.